Economic Consequences

To understand the human consequences of the economic slowdown, you have to look beyond the widespread layoffs. Consider the millions of people who have managed to keep their jobs yet have seen their pay slashed, often drastically. From home-improvement contractors to waiters to salespeople, those who are paid at least in part with commissions, bonuses or tips have been battered by the slowdown. "This may be the first downturn where, because variable pay is so pervasive, it's affecting everyone down to hourly workers," says John Bremen, a director in Watson Wyatt's compensation consulting practice. With their pay diminished, such workers typically reduce their spending. And when they do, the effect tends to ripple through layers of the economy.

Escalating gas prices are prodding businesses and local governments to take a drastic step to curb costs: Many are cutting back to four-day workweeks, with employees generally working four 10-hour days instead of five eight-hour days. In most cases, they're acting because of pressure from employees who want shorter workweeks, which generally mean lower driving costs. Companies and local government offices are shortening individual workweeks with staggered schedules, but in most cases, staying open five days. It's a sign of how deeply gas prices are cutting into employees' pay and businesses' bottom lines. The last time four-day workweeks came into vogue was during the gas run-up in the 1970s. In Alabama, the city of Birmingham decided to adopt a four-day week for employees starting July 1. On June 2, road crews in Walworth County in Wisconsin will start working four-day shifts.

Just when things were starting to look healthier for the domestic auto industry, the rapid acceleration of gas prices has suddenly made the industry seem sick again. Monthly sales are 10% lower than a year ago. But it's not really the sales total that is so troublesome: The automakers have seen sales drop 10% before. It's the speed at which consumers are moving to less-profitable small vehicle lines. Ford CEO Alan Mulally said in an interview on Monday that over the last six weeks, smaller cars went from 16% to 17% of the overall market to 28% of the market. The U.S. Big Three — General Motors, Ford and Chrysler — have spent decades making big profits on trucks and SUVs. General Motors announced plans Tuesday to shut four truck and SUV plants that employ thousands of workers, saying high gas prices are here to stay - and, with them, consumers' growing preference for more fuel efficient vehicles.