Bryan Caplan  

Pays Cuts: Are They For Real?

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Several economists I know say that labor markets have gotten more flexible in recent years.  But are nominal pay cuts really happening to any significant degree?  The only evidence that's come across my desk is from this piece, which claims that:
Fifteen percent of employers surveyed by the Society of Human Resource Management reduced pay in the past six months -- a threefold increase from earlier this year.
When I tried googling the SHRM survey, though, I just got other secondary sources.  I've nosed around their website for ten minutes, and couldn't find anything.  Can anyone help me out?  How was this survey really done, and what did it really say?

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COMMENTS (12 to date)
marmico writes:

The latest Challenger, Gray & Christmas survey says that [m]ore than half (52.4 percent) of human resource executives surveyed in May said their companies had instituted salary cuts or freezes in an effort to cut costs. is a daily RSS feed on paycuts.

von Pepe writes:

I took a 50% paycut for 2009...rather willingly.

The union staff in my apartment building got a 5.5% raise and my common charges for the building went up $55/month.

spencer writes:

Perhaps the best way to check this out is to talk to someone in the personnel department of a large corporation.

They subscribe to extremely detailed wage surveys by firms like the Hay organization that provide more detailed information about wage changes then any other source I know of.

When I worked for a large multinational corporation I found the personnel people gave me better info on wage developments than any other source.

Milton Recht writes:

Link to Bureau of Labor Statistics average employee compensation per hour for December 2008. It also breaks out the average cost of different benefits per hour. Additionally, there are regional, industry, union vs. non-union, and government vs private breakdowns.

"Employer costs for employee compensation for civilian workers averaged $29.18 per hour worked in December 2008, the U.S. Department of Labor’s Bureau of Labor Statistics reported today. Wages and salaries, which averaged $20.37, accounted for 69.8 percent of these costs, while benefits, which averaged $8.81, accounted for the remaining 30.2 percent."

Wages and salaries average a 4.85 percent increase from Sept. 2008 to Dec. 2008.

"Employer costs for employee compensation for civilian workers averaged $28.87 per hour worked in September 2008, the U.S. Department of Labor’s Bureau of Labor Statistics reported today. Wages and salaries, which averaged $20.13, accounted for 69.7 percent of these costs, while benefits, which averaged $8.74, accounted for the remaining 30.3 percent."

The March 2009, average wage report will be released by BLS on June 10, 2009. A comparison with the upcoming release and with the December 2008, September 2008 or earlier release will answer your question.

There is also a total employer compensation report and it shows an increase from December 2008 to March 2009. The next release of this report is on July 31, 2009.

von Pepe writes:

I might add, that in my job, I follow 30-40 companies financials very carefully. At least half have frozen wages or reduced hours or days e.g. 4-day work week. The most glaring change I have seen is the removal of 401(k) employer contribution...a substantial 'wage' reduction.

It is my experience that wages are much more flexible than is taught in textbooks.

Scott Wentland writes:

I am skeptical about wage flexibility that we hear about.

Wages must not be all that flexible, otherwise we would have unemployment closer to the natural rate. The very existence of rising unemployment suggests that wages are not flexible enough. This can't all be frictional unemployment.

There needs to be fire that makes all this smoke (unemployment).

I suppose one could make the case that unemployment could be a whole lot worse, but then again, wage could be more flexible than they already are. What we call "flexible," might not be all that flexible.

I'd still be interested in looking at the data though.

Nathanael Snow writes:

Several people I have know have taken new jobs recently have done so at lower wages than they previosly earned. Anecdotal as this is, I have started wondering how sticky wages models will survive.

Thucydides writes:

1)Wages must be sticky in order to support Keynesian theory. (If they are not sticky, wage drops would clear the market of unemployment). 2)Keynesian theory is essential to the status of economists; it allows them to tell politicians what they want to hear (It's OK to run deficits, no matter how useless the spending. Inflation is not to be feared, indeed is necessary to offset supposed permanent deflationary tendencies).

Therefore, 3) Wages are sticky. QED

The Cupboard Is Bare writes:

Our niche of manufacturing is experiencing reductions in sales by as much as 70%.

Employers are cutting staff, salaries, hours and benefits. Employees are being furloughed for a month or two at a time in the hope that things will be better when businesses reopen their doors.

Funny how no one complains anymore when it gets too hot in the office, because they know that being cool means increased energy costs.

I am doing my part in my own way. Since I work at home, I am able to put in extra hours without my boss knowing that I am doing so. It's my way of taking a voluntary pay cut.

Forget about growing a business. Now the primary focus is to keep everyone bailing in the hope that their boat doesn't get swamped before the worst is over.

Greg writes:

I've also heard anecdotal evidence about new positions being offered at lower wages than normal. Haven't heard as much about salaries being cut in my field (management consulting), unless you count incentive/bonus compensation, in which case they have gone down a good bit. I think wages are probably stickier in this field than in some because otherwise you end up with a more significant adverse selection effect.

The comments that wages must be sticky given the evidence of higher unemployment are interesting. I have two thoughts on that. First, flexible wages do imply better employment market clearing, but it's not clear how quickly that clearing would occur. Even with flexible wages, there would likely be a higher unemployment period while the market clears. Second, the economy is reallocating among sectors, functions, etc. Some jobs in firms with excess capacity are essentially creating zero economic value (e.g., a second line supervisor after you shut down your second production line). Unless wages for those jobs adjust to zero, flexible wages aren't enough to prevent some increase in unemployment as firms shed those jobs. So there isn't really a contradiction between some flexibility in wages and some higher unemployment.

As for the SHRM survey, it's a money-making product. I imagine that 1) the methodology isn't great and 2) you would need to crib a copy from a corporate HR department or contact the SHRM people and see if they'll give you access.

Otto Maddox writes:

Didn't HP implement a 5% across-the-board pay cut late last year or early this year?

Daniel Lurker writes:

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