AUGUSTA -- Wages and salaries plummeted 17 percent in the early part of this year, the kind of drop not seen since the 1930s, state economist Charles Colgan told lawmakers Monday.

"The effects of the recession on incomes in Maine and nationally were more severe than anticipated by any forecaster," he told members of the Appropriations Committee.

Colgan, a University of Southern Maine professor and member of the state Consensus Economic Forecasting Commission, said fewer people lost jobs than expected, but workers who kept their jobs saw their incomes decline.

Rather than drop workers, companies instead turned to shutdown days, pay cuts, shorter work weeks and taking away paid holidays to save money, he said.

Workers were willing to accept the cuts because they feared losing a job.

Colgan updated the committee at a meeting in which state budget writers continued discussion about how to cut $30 million from next year's state budget.

When lawmakers approved the budget earlier this year, it included language that required the Appropriations Committee to find that amount of money in the 2011 state budget. That amount is in addition to an estimated $200 million that will have to be cut from the $5.8 billion, two-year budget because of the recession.

"This committee faces difficult decisions in the coming months," said Rep. Peggy Rotundo, D-Lewiston.

Colgan said he expects employment numbers to improve next summer and that the recovery period will last through 2012.

"The good news is the worst of it is over," he said. "The bad news is, the worst was really bad."

The recession, which a federal economic panel said began in December 2007, has cost 27,000 jobs in Maine and will subtract a total of 34,000 before leveling off, Colgan said.

Rotundo asked Colgan for advice on how legislators should handle additional budget cuts over the next few months.

"The trick in these situations is to do as little damage as possible to your growth prospects on the other side," he said.

Sen. Bill Diamond, D-Windham, asked how businesses that rely on holiday sales to make a profit will fare this year.

"At the moment, we're probably not going to do any worse than last year -- but not much better, either," Colgan said.

Last week, state department heads submitted their cost-cutting ideas to Ryan Low, commissioner of the Department of Administrative and Financial Services. The ideas ranged from more job cuts to reduced public services in many areas.

Low said he will be meeting with department heads over the next two weeks to discuss the suggestions, then will work with Gov. John Baldacci to put together a proposal for consideration by the Legislature.

"As bad as it has been," Colgan said. "We are on track for a full recovery."

Susan Cover -- 620-7015

scover@centralmaine.com