Not Fired? Why Your Income Won’t Fall

Pink slips are becoming more common around the country but here’s a great oddity: According to the Bureau of Labor Statistics, hourly wages rose in 2008.

Huh? If people are losing their jobs don’t employers have the upper hand? Can’t they slash wages at will? After all, with rising unemployment levels who wants to lose their job in today’s economy?

It turns out that workers have more leverage then you might expect — and it also turns out that employers are not so dumb.

Imagine that you have a company with 200 employees. Times are hard and management must lay-off 10 people. That’s a five-percent staff cut. As well, the employer could also drop wages and benefits for those who remain — but doesn’t.

Why don’t wages for the remaining employees fall?

If wages fall the best workers will go elsewhere. They have the skills, experience and training to instantly get jobs. Notice that the unemployment rate is never 100 percent, there’s always a market for the best people.

If the best employees go elsewhere what happens to the employer? Who are the employees that remain? Soon quality and production fall, equipment needs more maintenance, deadlines are not met, sales fall off and customers go elsewhere.

There is however, an alternative for the employer. Instead of laying off 10 people and leaving them with no income, a smarter policy would be to go to the workers and offer them a vote: If you each can accept a 5-percent pay cut no one has to be fired. So we want to know what everyone prefers: unemployment for some or small payroll reductions for everyone? In either case, managers will agree to a 10 percent reduction in their basic pay.

Now, suddenly, it’s not workers versus management or workers versus workers. The necessary goal of lower costs can be achieved in a way which represents the least pain and dislocation to everyone.

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