Sunday, March 20, 2011

Wave Cuts Or Layoffs

I agree with the ideas here, at least in situations of severe recession. Interestingly, the very concept that there might be an alternative to layoffs is foreign to most people I talk to.

o it seems bosses are smart not to cut wages. It's bad for morale, which is bad for productivity. Sending out pink slips might seem similarly demoralizing, and thus bad for productivity, but layoffs have a more complicated effect on the lucky employees who hang on to their jobs. Layoffs can even boost productivity by giving workers a bit of extra motivation to prove their value, in the same way that Ford's high salaries encouraged hard work. And it might not be so crazy for workers to respond to wage cuts with suspicion—in the current recovery, corporate profits have sprung back, even as wages have stagnated. What could be more unfair, from the worker's perspective, than a cut in wages accompanied by higher profits? Yet this aversion to pay cuts isn't good for workers or the American economy more broadly. More people end up losing their jobs than if wages were more flexible, and there are serious long-term consequences for the workers who lose their monthly paychecks. The negative impact on a worker's earnings, health, and even the earning prospects of his children lasts decades beyond the pink slip's arrival. Creative solutions—like the furloughs that cut government salaries in California and elsewhere—might help to make lower pay more palatable, by presenting the cut as a temporary measure and by creating at least the illusion of a lower workload. If we can find other ways of overcoming the simmering resentment that naturally accompanies wage cuts, workers themselves will be better for it in the long run.

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