In the recent New Yorker column linked above, James Surowiecki cites some good reasons for why average American worker wages have actually risen during the recession:
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If employers cut wages, the more productive employees would leave for new jobs while less productive and less marketable employees would stay. Employers clearly don’t want this.
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Wage cuts reduce morale leading to reduced overall productivity, so employers are reluctant to cut wages.
Surowiecki uses the fact that productivity-per-employee has actually risen significantly as support for his conclusions.
However, he leaves out a reason that, to me, is the most obvious:
The people who actually decide on laying off workers typically get paid more than the workers that are being laid off. Thus, as lower-waged employees are cut, the higher-waged ones form a larger proportion of the employees that are still employed, thereby increasing the average pay-per-employee. By the way, I’m assuming that he’s including salaried employees in his analysis as well. If not, he would be excluding a significant subset of the “average worker”, which would certainly detract from his conclusions.
As someone who works for a company that has had significant headcount reductions, I see how this works mechanically. Headcount reduction, and not expense reduction, seems to the primary motivation of management. There are several rational reasons for this, which I don’t think are all that important for the purpose of this discussion. But in practice, its the lower-paid workers that do get cut first. There are more of them to cut and they are not missed as much on a per-capita basis.
Interestingly, the fact that productivity-per-employee is higher also supports my conclusion. Higher-waged employees ARE more productive. Also, laid-off employees are often replaced by technology. Both of these lead to higher productivity-per-employee.
I’d love to hear the thoughts of others on this subject.