Wednesday, April 29, 2009

Got wages?

The common theme among the following articles is: wage cuts.

Tentative Nod to a Pay Cut at The Times:
The Newspaper Guild, the union that represents newsroom and certain other employees of The New York Times, tentatively agreed Tuesday to a 5 percent salary cut that had been proposed by management. The pay cut, which has already been imposed on nonunion employees of the newspaper, will go to a full vote of the union membership next week. The pay reduction, which began for nonunion workers on April 1, would end on Dec. 31, 2009, the union said.
More Job Reductions Planned at Sotheby’s:
Salaries will be reduced for top employees, too, and the company plans unpaid furloughs as well as a reduction in pension contributions for those working in the United States.
NC governor cuts pay of state employees, teachers:
North Carolina Gov. Beverly Perdue on Tuesday ordered a pay cut for all state workers in May and June equal to a half-percent of their annual salary as worsening tax collections force her to find about $1 billion more in savings before the end of the budget year in June. (Note: many states are cutting pay to accommodate record revenue loss)
Hundreds of Danvers employees accept salary freeze:
The employees make up seven of the town's 12 labor unions. Their agreement to forgo an approximate 3 percent raise in the coming fiscal year means no layoffs in their respective collective bargaining units as Town Manager Wayne Marquis scrambles to close a $900,000 budget shortfall.
And in Singapore, Layoffs remain companies' cut of last resort:
This time around, even before the National Wages Council (NWC) released revised guidelines in January, many employers had already moved to reduce their wage bills, and staved off (or maybe delayed) the need to wield the jobs guillotine.
The unemployment rate was 8.5% in March, up 3.4% since just last year (when the U.S. was already in a recession). Workers are desperate and willing to accept the salary freezes and/or wage cuts. As costs (wages) come down, firms are better able to reduce final goods prices in order to sell their product as demand for their product falls. But then, as prices fall workers are willing to accept lower wages. This is the infamous wage-price spiral.

Anecdotal evidence suggests that wages and salaries are either falling or frozen - at least mine was in 2009 - but certainly not rising. Although the chart above shows that average hourly earnings are not falling yet, the annual rate of growth is certainly slowing. Wages: just another signal that prices are going down.

Rebecca Wilder

6 comments:

  1. Maybe more state governments should do the same. It is interesting how people think wages should always go up when the economy has both advances and declines. Why NOT have wages do the same? You sure would if you were self-employed.

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  2. So are we seeing the beginnings of a deflationary spiral?

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  3. Hi Janie,

    You think that this is bad? Go to Germany, wages are practically fixed there....never to move in any direction but up.

    Thanks for the comment. Rebecca

    Hi David,

    Good to hear from you! Spiral, hopefully not. But some core deflation, likely.

    Rebecca

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  4. If wages are not rising anymore how will the debt be serviced?

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  5. Hi Anonymous,

    You hit the nail on the head! The biggest economic cost of deflation comes from the defaults and reduced aggregate spending coming from rising real returns (falling wages/prices and relatively fixed interest).

    Thanks for the comment! Rebecca

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