Layoffs versus Pay Cuts

I think there are ways to overcome the sticky-wage theory that encourages firms to lay off employees rather than cutting wages (Finding good news in falling prices, New York Times, December 17th, 2008: B1).

If wages and working hour cuts are focused on only one part of the firm such as shop floor employees in a single factory or clerks in a single office then those employees will feel resentment and reduced motivation. However if the cut in hours and wages are shared across the whole organization from the President at the top to the new employee at the bottom then a different dynamic will be invoked: people will see that they are all in this together; that the pain is shared by management and workers; and they will be motivated to work to find ways of improving the firm's performance. That, at least, is the finding of the research on downsizing in the 1990's.

Sent to the New York Times