Megan McArdle has a post about wage stickiness. I’m pondering a post on the subject myself, but it’ll probably end up in the backlog file. So with something better than nothing (and maybe a more complete post to come later, some thoughts.
When I was working at Mindstorm, all employees were required to take 10% pay cuts. I much, much preferred this over the alternative. I wish it is something that our culture could do more of rather than layoffs. It is a mixed bag, though. If you lay off 8%, then of course 90% are fine. I mean, they may have to work more hours to cover for the lost people, but they will still be able to meet their bills. On the other hand, if you give everybody a 10% pay cut (I’m making there be a difference because it’s cheaper to have fewer employees that you pay more than more employees that you pay less), and if half of those people are living hand-to-mouth, then you now have 50% of people that are missing payments and such because they were counting on $x rather than $.9x in income. A part of me says that it’s their own fault for living hand to mouth (unless we’re talking about near-poverty wages, in which case the wage cut isn’t exactly the problem), but people will live how they live.
Given the increased labor flexibility (it’s easier to find work near minimum wage than if you’re in the professional class), maybe layoffs are better for the poor and wage-cutting is better for those above a certain threshold?
McArdle also talks about wage stickiness among the unemployed. apparently at least part of the reason for it is on the employers’ side: there is a degree of signalling in the wages you ask for. She closes with the following:
Come up with a good story about why you’re willing to accept lower wages. When I was interviewing for my first job at The Economist, they asked me flat out why an MBA would be willing to take a job that paid $40,000. Part of the answer was, of course, that I needed a job. But that’s not what I said. What I said was also true: “I’m only going to be on the planet for a few short years. I want to do something that’s a lot more important to me than making money.”
My personal experience doesn’t really bear out the notion that it’s on the employer’s side. I got my first 9-5 job essentially by offering to work for substantially less than the job advertised for. The interview was not going well and it was a sort of hail mary. But it worked. And a number of jobs I have gotten since I have been overqualified for. Which is not exactly the same thing, but you’re confronting the same obstacle: I am worth x, but am asking for less than x. Only once have I been turned down for a job that I was overqualified for, as near as I can recall. It’s a little different, though, when you’re taking industry wages for a lesser job. There’s always the dangle of advancement. Getting raises for doing the same job seems to almost never happen anymore. Even before the recession.