Should I Take a Pay Cut?

There are more than 16 million people unemployed and an estimated 3 million job openings. Clearly we've got an oversupply of labor. And as the rule of economics says, when the supply of a commodity (labor) exceeds demand (jobs), prices (pay rates) will fall.

But how much of a decline in compensation should we expect or accept?

According to the 2009 Annual Career Fair Survey by Next Step Career Solutions, the majority of people would consent to pay cuts to be re-employed. How much of a cut? About 65 percent say they would take a 30-percent pay cut! Another 7 percent said they would tolerate pay cuts of 40 percent or more.

Wait a minute. Could these numbers be right? Ask yourself.

If you were unemployed and had been out of work for several months, would you accept a 20-percent, 30-percent, or 40-percent reduction in pay? Paul Bernard, a career adviser, commented that "being asked to take pay cuts in the 20-percent range is pretty standard."

My experience in talking with hundreds of age-50+ job-seekers confirms that the reported expectations of what we will agree to salary-wise to secure new jobs are indeed widespread.

Are We Happy About It?

The truth is that when you're unemployed and savings are dwindling, it becomes easy to forget the old guideline that your wages must always increase when you change jobs. Any income is better than no income or unemployment compensation, which can be as little as $250 to $400 a month in some states. Particularly if you expect to work only a few more years, such pay cuts may be OK. But what if you need or want to work for five, 10, or 20 more years?

It appears that people accepting large salary reductions generally see themselves as consenting to a temporary situation. They assume they'll return to higher pay levels, in better jobs, when the economy improves. But think about the consequences of accepting less compensation.

The Downside

Aside from the obvious fact that a pay cut will result in a diminished standard of living, there are other disadvantages of accepting a substantially lower rate of pay:

• Opportunity Lost - If you accept the lower-paid job, you basically take yourself out of the job hunt. Sure, you intend to keep searching for a better job, but you would have less time to do so. Besides, it's a relief not to be searching for a job. You may miss what could have been a better opportunity.
  
• Future Unemployment Compensation Benefits - In most states, unemployment benefits are based on previous earnings. If you accept a large cut and again find yourself unemployed, your benefits could be far less. If your state pays generous benefits, it may be to your advantage to hold out for a higher wage.
  
• Long-Term Damage - Pay on a new job is often closely linked to your recent earnings level. Taking a large reduction until something better comes along could haunt you years later.
  
• Questions About Your Pay History - It's always awkward when a recruiter asks about your current or most recent pay level. The key is to direct the conversation to what the competitive level is and to the marketplace value of your qualifications. If you've recently taken a substantial pay cut, explain that it was financially necessary for you to continue to search for the best available opportunity, and the lower rate does not reflect your worth.

The Upside

• It's Better to Be Employed - It's widely acknowledged that an employed candidate is seen more favorably than an unemployed candidate. You can turn this to your advantage if you've been financially compelled to take a lower-paying job to survive. Taking the offer shows other employers your resilience and work ethic.
  
• New Capabilities - Despite the lower pay, the new job might provide important training and valuable experience in a new field.
  
• Frame of Mind - Staying employed keeps you active and engaged. Unemployment can be one of the most exhausting and draining experiences in our lives. Getting back to work is a boost to our morale and self-esteem. In RetirementJobs.com's Job-Seeker Workshops, the first principle participants learn is this: "A job is better than no job!"
  
• Networking - The new workplace may give you a whole new group of people for networking opportunities. Networking should always be a major part of your job search, and getting back to work—even at a lower pay rate—opens you to many more people.

A Hard Pill to Swallow

Believe it or not, employers could be hesitant to hire you at all if they knew you were taking lower wages. Try as we might to explain, "Look, I know what this job pays," employers are reluctant. They understandably fear you'd leave at the first better opportunity.

In the end, if offered a new job with a lower pay rate, ask yourself, "Is this a good job and a good employer with longer-term potential?" It could be a long time before we see labor markets that press employers to "bid up" the wages of employees.

So consider the long-term prognosis for your career: Make it your goal to find the most sustainable job you can with a financially sound, age-friendly employer that values mature workers.