United States | Job market

The quiet Americans

Posted: Saturday, Jun 27, 2009 at 2359 hrs IST
Updated: Saturday, Jun 27, 2009 at 2359 hrs IST

Font Size

Feedback

Discuss

‘People still prefer piracy to paying for world ci...

: Back when times were better and the newspaper industry wasn’t fighting for dear life, reporters at the Cleveland Plain Dealer would regularly grumble at the measly pay increases their union negotiated. Last month, when the union announced it had negotiated a 12% pay cut in exchange for a promise of no lay-offs, there was applause. “It took me aback,” says Harlan Spector, a medical reporter and one of the negotiators.

Like many long-standing economic relationships, “wage stickiness” is being tested by the savagery of the recession. Ordinarily, when unemployment shoots up wages do not tend to fall: they simply grow more slowly. Why the price of labour responds less to demand than that of other commodities is a bit of a puzzle. In the 1990s Truman Bewley of Yale University interviewed hundreds of employers and discovered that, faced with a slump in demand, they would rather lay some workers off than cut the pay or hours of everybody. The sackings devastated those directly affected, but broad cuts to pay and hours hurt everybody’s morale. “The main drawback of pay cuts is that they fill the air with disappointment and an impression of breach of promise, which dissolve the glue holding the organisation together,” he wrote in 1997.

In this recession hard-pressed employers are not just laying off workers but cutting wages and implementing “furloughs”—unpaid, compulsory time off. A survey by YouGov for The Economist this week found 5% of respondents had taken a furlough this year and 13% had taken a pay cut. Watson Wyatt Worldwide, a human-resources consultancy, says the proportion of American employers implementing either wage cuts or furloughs has risen sharply since October (see chart 1). Since September, as unemployment has jumped three percentage points, the average work week has shrunk (see chart 2) and hourly wage growth has slowed sharply to 3.1%. The slowing will be even sharper once a big fall in bonuses, especially in the finance industry, is included.

Higher inflation in the early 1980s and 1990s meant employers could simply freeze wages or raise them more slowly than prices to achieve real cuts in pay. This still dented employees’ standard of living but without the humiliation of a smaller paycheck. Now inflation is lower (in fact, negative because of a big drop in fuel costs). So, in the absence of big increases in productivity, wage...

Post Comments

Comments: (Limit 3,000 characters)

Name		Message
Email ID
Subject

TERMS OF USE:
The views, opinions and comments posted are your, and are not endorsed by this website. You shall be solely responsible for the comment posted here. The website reserves the right to delete, reject, or otherwise remove any views, opinions and comments posted or part thereof. You shall ensure that the comment is not inflammatory, abusive, derogatory, defamatory &/or obscene, or contain pornographic matter and/or does not constitute hate mail, or violate privacy of any person (s) or breach confidentiality or otherwise is illegal, immoral or contrary to public policy. Nor should it contain anything infringing copyright &/or intellectual property rights of any person(s).

I agree to the terms of use.