You have a point. It is possible that if you discount your price during a weak market, you may have a hard time raising your pay in a strong market. This is particularly true if you do not try to.

Let’s analyze this: Going from $41K to $55K in 7 years is slightly more than 5% compounded increase which yields a total 7 year income of $334K, while 6 years at $55K is $330K. So, getting “back to the 55K level” isn’t the issue. You’d have to land a job paying $55K and that also gave significant raises to be better off.

But, my story and yours are quite different.

I am advocating both accepting what the market will bear, but also asking for it. So, if you became worth $55K one year later, you should ask for that.

In my case, I only worked at $20/hour for 2 weeks.

When I went to Mobil, it was on a 6 month contract making $30/hour as a subcontractor to a prime contractor who charged Mobil $50/hour. Two months before the contract ended, I did another marketing campaign to make sure I had excess demand for my services. Mobil wanted me to say, so I renegotiated with the prime contractor a deal where I charged Mobil $50/hour and paid the prime $15/hour finder’s fee. At the end of a year I got to bill Mobil $50/hour directly and keep it all to myself. Six months after that I raised my rate to $60/hour and they accepted it. Had they not, I had another employer who gladly would have taken me.

The job that I lost when this story began paid $28K (plus benefits). Within two years I was billing more than $100K and my benefits did not cost me more than $6K. Times were very hard then, and I had friends who were unemployed during those years who said they could not imagine taking the risks that I was. Risk? At the end of two years, I had enough money in the bank to take a 2 year vacation and still be ahead.

I am 57 years old now, and I know tons of people my age who where making big bucks when they lost their job half a decade ago, and they are unemployed to this day. I will be surprised if they get another job paying anything like what they made – ever. Their old salaries were often a function of longevity, not inherit market value. Today their skills are ancient and they have gotten out of the habit of working.

But, if you believe that new employers will always base your starting pay on your current salary, then employers will treat you as if that were true. Under such circumstances, your analysis is correct.

Even so, I recommend that you keep your skills current by working for free rather than discounting your rate. A $350/hr lawyer who cuts his rate to $200 might have a hard time getting back to $350. But if he does lots of pro-bono work, nobody thinks he is no longer a $350 lawyer. Instead they think he is so successful he can afford to be charitable with his time.

In 1991 I had almost the exact experience you describe. I was laid off from a job paying 55K/year, and after a few months of unemployment I was convinced by a small company (using essentially the same arguments that you do) to accept a job that paid 41K/year. It took me about seven years to get back to the 55K level. If I had held out for a year to get a 55K job, my earnings over my lifetime would have been much greater. (New employers will always base your starting pay on your current salary if it is below “market price”.)

Our comments are moderated. Usually, we want to keep the discussion on topic, and while we encourage people to attack ideas expressed, we dislike attacks against people (especially me).

But, I realized you might be putting into words thoughts that many people might be having.

Regarding the Great Depression, my goal is not to lay blame, but to explain.

And the goal of NSoW is not to argue what is the best economic policy that should be implemented by others, but what is the best approach to dealing with our own circumstances – concentrating on what we can do as individuals.

In the late 1930’s, my grandfather wrote to a friend about how good the Great Depression had been to them. By volunteering for pay cuts, he helped keep his employer alive. Because brokers were going bust, they were able to rent a huge home for very little. Because they had so much extra space, they took in a young couple, exchanging babysitting for room, board, and clothes. With the free time, Grandmother went to work for a housing developer, and because money was so tight, she took compensation in the form of a house built at cost. In a few years, they owned a home free-and-clear and Granddad’s career took off since there were so few experienced people still around when opportunities opened up. Free of the burden of meeting day-to-day costs, the young couple were able to save enough money to buy their own business.

Rather than grouse about who caused the sorry state of the economy, or try to find someone to blame, they all went to work – and were rewarded for doing so.

You can read the entire story here.

As for being a hedge fund manager, I was one from 2000 to 2006, but am no longer. I am not a fan of that industry – but that is a separate discussion.