In a recent survey, 5 out of 8 U.S. households indicated they were living paycheck to paycheck. I believe it is safe to assume that this is in addition to a smaller number of households, perhaps 1 in 24, that have no paycheck and no regular source of income.
This is a statistic that, in my opinion, rivals the emotional impact of the Great Depression. To be sure, pay cuts were more common in the Great Depression than they have been in the past three years. Still, the largest group of workers then, as now, kept their jobs and kept working. The employment rate never fell below 75 percent during the Great Depression, and the effective employment rate has not yet fallen below 81 percent during the current recession. But people who have remained employed are not unaffected, and based on the survey, about half of fully employed households are also feeling the squeeze.
Economic relief is not on the horizon for workers; rather, more stress is on the way for major employers. In surveys, more businesses anticipate layoffs than new hiring. Emotional relief, then, will have to come from cultural changes that reduce the expectation of spending. People can stop living paycheck to paycheck by foregoing spending that previously seemed mandatory. This has already been happening, of course, with millions of households giving up land-line telephone service, cable television, exercise club memberships, and newspaper and magazine subscriptions. It will take more adjustments of this kind to restore the sense of discretion to consumer spending, along with the feeling of freedom that goes with it.