Name: America’s hidden economic crisis: Widespread wage cuts
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America’s hidden economic crisis: Widespread wage cuts

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Employers are using pay cuts to stay afloat during the recession, an unusual move that could signal deep damage to the labor market.A woman walks past empty tables at a restaurant in Miami Beach, Fla. on Sunday, July 12. | Lynne Sladky/AP PhotoMillions of Americans who managed to hold onto their jobs amid the coronavirus pandemic have seen their incomes drop as employers slashed wages and hours to weather what they expected to be a short-term shutdown.Now, with the virus raging and the recession deepening, those cuts that were meant to be temporary could turn permanent — or even pave the way for further layoffs. That could portend deep damage to the labor market and the economy because so many workers who have kept their jobs have less money to spend than a few months ago.The numbers haven’t received the same attention as job losses, which are highlighted every week in government data. But at least 4 million U.S. workers have received pay cuts since February even as they continued working the same job, and millions more have seen pay freezes, according to economists from the Federal Reserve and University of Chicago who .Other estimates put it higher: Roughly 7 million workers have likely received a dock in pay, according to Mark Zandi, the chief economist at Moody’s Analytics. Combined with those who have been forced to log fewer hours, the number climbs to 20 million people — or 1 in 8 workers — who have seen their paychecks shrink over the past few months even as they continued to work, underscoring how much harm shutdowns have caused beyond layoffs alone.“We have an income crisis that is even larger than a jobless crisis,” Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth, recently.“There’s so much that falls under that,” Sahm, who previously worked at the Federal Reserve, said in an interview, referring to the “income crisis” label. “There’s these massive job losses. There’s hours being cut, overtime being lost. And then on top of that — and this is something we just really haven’t seen at all — is a large fraction of workers taking cuts in their wages.”Notably, the cuts are mostly hitting higher-wage workers, who tend to be more shielded from the effects of a downturn. And smaller paychecks, even in the short-term, lead to less spending, extending any recession.“The speed of a recovery is really directly aligned to how consumers are behaving,” said Jane Oates, a former Labor Department official who is now president of the nonprofit WorkingNation. “And if people don’t have money, they’re not spending it.”The trend also suggests that employees feel they have no better options than to accept less money for the same work. Americans believe they have a less than 50 percent chance of finding a new job within three months if they became unemployed today, according to a — a drop of more than 16 percentage points from a year ago.It spells trouble for employers, too, who have historically avoided pay cuts because of the damage they do to employee morale and company productivity. But a drop in wages is twice as likely now as it was during the Great Recession, according to the study of ADP data, likely signaling that employers felt they had no other choice if they wanted to keep their doors open.In 2016, the Trump campaign drove down turnout from Black voters by focusing on Hillary Clinton's past racist comments. Now, they're trying to do the same thing with Joe Biden.|Jamie Vagedes, an accountant for the travel rewards company Maritz Motivation in St. Louis, took a 20 percent pay reduction in April that he thinks could remain in place at least another three to six months. The company, which partners with hotels and rental car companies that have been brutally hit by the pandemic, has already laid off or furloughed roughly a quarter of its staff and has not given a time frame for reinstating incomes for those who remain.“It’s a real kick in the shins,” Vagedes said.Vagedes said he was able to get a delay in paying his mortgage, but all other bills and expenses have remained the same. “Doing everything on 20 percent less — it’s challenging,” he said.The longer the shutdowns continue and the economy lags, the more likely temporary cuts are to turn permanent, or to result in further layoffs, economists warn. If companies resorted to reducing pay as a matter of survival, “then the next thing is, I just gotta cut [jobs] — I have no choice,” Zandi said.Unlike job losses, which have disproportionately affected low-income workers, the pay cuts are mostly hitting workers in white-collar industries, according to the study of ADP data. Three-fourths of the cuts in pay fall within the top 40 percent of wage earners, researchers said.And some of the biggest companies have taken part. Julia Coronado, a former Fed economist who founded the firm Macropolicy Perspectives, tracked U.S.-based companies with market caps greater than $1 billion and found that 42 percent of the 260 firms providing details on earnings calls between April and July were reducing pay.Lyft announced three-month pay reductions for all salaried employees ranging from 10 to 30 percent, while retail giants Best Buy and Gap focused income reductions on executives.The move to cut wages reflects that employers initially felt the economic downturn was going to be short-term.President Donald Trump and Melania Trump for Covid-19.At the beginning, as shutdowns first took hold, “There is a willingness to take a pay cut because you think it’s going to be a temporary thing,” said Diane Swonk, chief economist at Grant Thornton. “It really underscores how unique this recession is — people saw it as a transitory event.”But the latest data now suggests the recession is likely to deepen and last far longer than initially anticipated as coronavirus cases reach record highs and a majority of the country has either paused or reversed reopening plans.Growth in consumer service spending is expected to halt in July and August, Goldman Sachs said in an analysis on Friday. New unemployment claims have remained above 1 million, a previously unprecedented level, for 17 straight weeks. And the number of American households expecting to lose income over the next month has begun to rise in recent surveys after six straight weeks of declines, according to Census data.“Now what we’re concerned about is that some of those temporary wage cuts could become permanent or turn into larger layoffs down the road,” Swonk said.It’s too early in the crisis to know for sure whether the pay cuts are here to stay, economists say, though it’s difficult to expect wages to rise while so much of the economy remains shuttered and while consumers are too concerned about the coronavirus to resume regular behavior and spending.Some of the biggest cuts are almost certainly going to be short-term, like companies that slashed executive salaries down to zero, Coronado said. But other reductions could persist.“We have seen the share of companies reporting more permanent layoffs rising,” she said, “so if that is on the rise, then you might get some of these pay cuts proving to be more lasting.”

Employers are using pay cuts to stay afloat during the recession, an unusual move that could signal deep damage to the labor market.A woman walks past empty tables at a restaurant in Miami Beach, Fla. on Sunday, July 12. | Lynne Sladky/AP PhotoMillions of Americans who managed to hold onto their jobs amid the coronavirus pandemic have seen their incomes drop as employers slashed wages and hours to weather what they expected to be a short-term shutdown.Now, with the virus raging and the recession deepening, those cuts that were meant to be temporary could turn permanent — or even pave the...

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MEGAN CASSELLA

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America’s hidden economic crisis: Widespread wage cuts

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