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Economy's long slump pushing many down the ladder

John Makely / NBC News

Jim Vavrek's temporary work contract was cut short when his employer switched vendors. He spoke about his career while at home with his dog, Vincent, after his last scheduled day of work.

Jim Vavrek has experienced a lot of firsts in the last few years, and that has not been a good thing.

There was the first time he had his water shut off because he couldn’t pay the bill, and the first time he looked into applying for food stamps because he didn’t know how he could afford to eat.

And there was the first time he realized that despite insurance coverage, he still owed thousands of dollars from his late wife’s short fight with cancer – bills he could not afford to pay.

“It’s amazing how fast everything happens,” Vavrek, 50, mused recently, as he drove from his job in New Brunswick, N.J., to his home in Point Pleasant, N.J.

The commute was about to become a memory – Vavrek had just learned that he was going to lose the $13-an-hour contract job he’d landed about a year and a half ago. It had been a big financial step down from when he made $70,000, plus a bonus, several years ago, but at least it was a paycheck.

The recession and weak recovery of the past five years have forced many Americans to take a financial step backward, from the security of a middle class life to the struggles of living paycheck to paycheck or among the working poor.  For many, a series of economic blows  – a job loss, pay cut, divorce, health care bill or unexpected emergency – has played a role in pushing them down the economic ladder.

Just as so many individual Americans have taken a step backward, the nation’s cumulative financial well-being also has taken a hit over the past decade.

“By almost any measure of economic well-being, we haven’t made progress,” said Mark Zandi, chief economist with Moody’s Analytics.

Real median household income, the midpoint of what American households earn annually, fell 6.4 percent from 2007 to 2010, to $49,445, according to the most recent U.S. Census Bureau data available. The 2011 data will be released this week.

Median household net worth plunged nearly 39 percent over those three years, according to the Federal Reserve’s latest data. A big factor likely was tumbling home values.

Meanwhile, poverty increased. About 46.2 million Americans, or 15.1 percent of the population, were living in poverty in 2010 as determined by the Census Bureau, an increase of 2.6 percentage points from 2007. That data also will be updated this week.

The changes have meant that more people have had to turn to government aid. About 44.7 million people participated in the SNAP program, commonly referred to as food stamps, last year, up from 26.3 million in 2007.

Down the Ladder:An occasional series on Americans struggling to hold onto a middle-class life. Connect with us on Facebook, follow us on Twitter (hashtag #downtheladder) or send us email.

Not surprisingly, many people feel worse off, and are upset about it. A study from the Pew Research Center found that four in 10 people who identify themselves as middle class say they are in worse shape financially then before the recession began in late 2007.  Another Pew study released this year found that two-thirds of Americans see strong or very strong conflict between rich and poor Americans, a big increase over just a few years earlier.

The nation’s economy was officially in recession from December 2007 to June 2009, but the recovery since than has been painfully slow.

“Even though we’ve started to dig ourselves out of that economic hole that we got ourselves into, we’re still a long way from getting out of it,” Zandi said.

Many people who are struggling now never imagined they’d be in a position where they would need help with something as basic as buying food.

RelatedDo you feel like you are falling down the economic ladder? We want to hear from you

Michael Scarbrough, 47, made a six-figure salary for years, selling heavy construction equipment in the Atlanta area. Sales dried up in early 2009 as the housing and commercial construction market plummeted.

That’s when the family’s finances slowly began to slip. He and his wife, who have a 6-year-old son, lost their 3,200-square-foot home, their Hummer, their Corvette and most other vestiges of their more affluent life. They eventually were forced to turn to food stamps and government–subsidized housing.

These days, his wife works full-time for a big retailer. He’s brokered the sale of just one piece of heavy equipment so far this year and expects their annual combined income will be less than $30,000.

“I’ve had to struggle to get by before, but never where I’ve had loss on this scale,” he said. “It’s been a drastic change.”

A job loss, cut in pay or reduction in hours typically marks the beginning of falling down the economic ladder, but for some the problems have been compounded by big, unexpected expenses or debt.

In general, many Americans got a better handle on their debt after the recession hit. But  households in the $25,000 to $50,000 income range remain in a much more precarious situation, Zandi said.

Darrell Glaskin, deputy director of the Center for Health Disparities Solutions at Johns Hopkins University, said medical expenses can be an especially big problem for people who are already making low wages. That’s because even if you have insurance, a 20 percent co-pay for something like a broken arm can still mean you don’t have enough money to make your car payment that month.

John Makely / NBC News

Vavrek takes his dog Vincent out for his daily walk.

Meanwhile, some programs that help people with medical needs have faced budget cuts.

“Has this current recession made things worse? Yeah, in the sense that there are more people in need, and the resources to provide for them have not increased and, in fact, in some cases they have declined,” he said.

Vavrek, the New Jersey man, found out in late 2007 that his wife of five years was ill with cancer. By August 2008 she had died.

The couple had insurance, but the co-pays for treatment and medicine still added up to thousands of dollars in debt, some of which he put on credit cards. He still has at least $7,000 left to pay off, and even now he said he occasionally gets new bills addressed to his wife.

About a year after his wife’s death, he lost his job working in information technology for a large media company. From there, he worked a string of jobs in sales and retail before landing a contract IT job. He recently lost that too.

In such a weak economy, it’s not uncommon for someone who loses a job to take one that pays less. A government survey of workers who were displaced between January 2009 and December 2011 showed that out of the three million people who lost a full-time job they’d held for more than three years and found a new one, fewer than half were making as much as they once had.

Heidi Shierholz, an economist with the Economic Policy Institute, said that’s been an especially big problem in the past few years, because jobs have been so scarce.

“If you lost your job in 1999, you were pretty much able to find a job that was similar to the one you lost,” she said. “But right now, if you lost your job in the Great Recession or its aftermath, you just got slammed in your wages.”

Vavrek has held on to his house but struggled with other bills. A low point came when he arrived home one day and found his toilet wouldn’t flush. It turned out his water had been shut off because he hadn’t paid the bill.

“I’m 50 years old and I’ve never, ever had a utility shut off on me, and that was devastating,” he said.

He had to borrow money from his mother to get it turned back on.

He has sold his SUV and cut out movies, eating out and trips to regular stores. Instead, he relies on a dollar store and discount grocers. He keeps the lights off when he can and even turns the coffee maker off as soon as his coffee is finished brewing to save on his electric bill.

He had already applied for food stamps before he even discovered he was going to lose his job. It’s something he never thought he would do.

The sudden change in financial circumstances has left many people living a kind of economic double life, where they still have the material things they purchased when times were better but struggle to pay other bills.

Lynne Hackaday has the exact same job as a medical transcriptionist that she’s held for years. But while she once brought home more than $70,000 a year, the same work now nets no more than $25,000 a year.

Hackaday’s reimbursement rate has plummeted as her field has become more automated and faced increased competition from workers in other countries. She’s looked at working for other companies but said the lower rate is generally the new norm for the industry now.

Although her situation is extreme, economists say it’s not uncommon to see wages stagnate or decline in such a tough economy.

“Persistent high unemployment hurts wage growth across the board,” Shierholz said. “Even if you have a job, if your employer knows there’s no outside options for you, they have no incentive to give you wage increases.”

In better times, Hackaday, 60, purchased a $300,000 home in Winston-Salem, N.C., figuring that her salary would more than cover the mortgage. Instead, she and her husband now allocate almost all of his military retirement check just to the monthly mortgage bill.

“The only thing that’s saved us is my husband’s retirement,” she said.

They don’t think they could sell the house because of the weak housing market. But the nice home belies their much more meager existence. They are driving 13-year-old cars they can’t afford to replace and have cut back on everything from eating out to how much they can give at church.

Hackaday had hoped to retire at 66 but now she doubts that will happen. Despite their hardship, she knows they have it better than many people.

“I am grateful that I have a job, even though I make less and less doing the same job,” she said. “I do try to do my best.”

Although the weak economy has made things particularly tough, for many people the struggles began years before that. Real median household income has fallen 7 percent since 1999, after rising fairly steadily for decades before that. The wealth gap between the richest and poorest Americans also widened during the recession, according to an analysis by the Economic Policy Institute.

After Roberta Lowther, 56, lost her $50,000-a-year job as an information security analyst in 2003, she moved from Indiana back to her home state of Alabama. She had a long stint of unemployment before she finally found a job working in the state’s children’s rehabilitation program. She likes the work, but it only pays around $22,500.

In 2007, she went back to school. But even after earning a college degree, Lowther still hasn’t been able to find a better-paying job.

She cashed out her 401(k) and ended up filing for bankruptcy, and she still struggles to pay her monthly bills. Luckily her husband, who is nearly 70, is getting a pension. That brings their combined income up to around $60,000.

“Had he not been in my life, I don’t know what would have happened,” she said. “I often wonder about that. Would my faith have been strong enough to get me through this?”

Many people who have taken a financial step backward wonder if they will ever work their way back up the financial ladder. Zandi, the Moody’s economist, is optimistic that in the coming decade, jobs will slowly return, wages will once again rise and people will start to make up lost ground.

“It’s been a very wrenching decade, but we’ve been doing a lot of hard lifting and I think the economy’s fundamentals are in much better shape,” Zandi said.

Still, he conceded, “It’s hard to see it. Most people don’t.”

Related: Read all the stories from the Down the Ladder series.