More Workers Face
Pay Cuts, Not Furloughs
Published: August 3, 2010 - New York Times
The furloughs that popped up during the recession are being replaced by a
highly unusual tactic: actual cuts in pay.
Local and state governments, as well as some companies, are squeezing their
employees to work the same amount for less money in cost-saving measures that
are often described as a last-ditch effort to avoid layoffs.
A new report on Tuesday showed a slight dip in overall wages and salaries in
June, caused partly by employees working fewer hours.
Though average hourly pay is still higher than when the recession began, the
new wage rollbacks feed worries that the economy has weakened and could even be
at risk of deflation.
That is when the prices of goods and assets fall and people withhold spending as
they wait for prices to drop further, a familiar idea to those following the
recent housing market.
A period of such slack economic demand produced a lost decade in Japan, and
while it is still seen as unlikely here, some policy-making officials at the
Federal Reserve recently voiced concern about the possibility because the
consequences could be so dire.
Pay cuts are appearing most frequently among state and local governments,
which are under extraordinary budget pressures and have often already tried
furloughs, i.e., docking pay in exchange for time off. Warning that they will
have to lay off people otherwise, many governors and mayors are pressing public
employee unions to accept a reduction in salary of a few percentage points,
without getting days off in exchange.
At the University
of Hawaii, professors have accepted a 6.7 percent cut. Albuquerque has
trimmed pay for its 6,000 employees by 1.8 percent on average, and New Yorkfs
governor, David
A. Paterson, has sought a 4 percent wage rollback for most state employees.
State troopers in Vermont agreed to a 3 percent cut. In California, teachers in
the Capistrano and Pacheco school districts have accepted salary cuts.
gWefve seen pay freezes before in the public sector, but pay cuts are
something very new to that sector,h said Gary N. Chaison, an industrial
relations professor at Clark University. Outsize pension costs and balanced
budget requirements are squeezing many states as tax revenue has come up short.
It is impossible to say how many employers have cut workersf pay, because the
government does not keep such statistics. Economists say a modest but growing
number of employers have ordered wage cuts, especially in the public sector. In
a 2010 survey by the National League of Cities, 51 percent of the cities that
responded said they had either cut or frozen salaries of city employees, 22
percent said they had revised union contracts to reduce some pay and benefits,
and 19 percent said they had instituted furloughs.
Some businesses are also cutting workersf pay, often to help stay afloat or
to eliminate their losses, although a few have seized on the slack labor market
and workersf weak bargaining power to cut pay and thereby increase their profits
and competitiveness.
Economists note that wages continued to increase in 2008 after the recession
began, even adjusted for inflation. But those wages have been flat for the last
18 months, according to the Bureau
of Labor Statistics.
Mr. Chaison says the latest wave of private-sector pay cuts is reminiscent of
those in the early 1980s, when many companies — especially those with unionized
work forces — cut wages in response to a recession, intensified competition from
imports and new low-cost competitors spawned by government-backed deregulation.
Now, as then, companies frequently say that compensation for unionized workers,
in both wages and benefits, is out of line. For instance, the Westin Hotel in
Providence, R.I., after failing to reach a new contract with its main union, has
sliced wages 20 percent, saying its previous pay levels were not competitive
with those at the cityfs many nonunion hotels.
Factory owners sometimes warn that they will close or move jobs to lower-cost
locales unless workers agree to a pay cut. In its most recent union contract, General
Motors is paying new employees $14 an hour, half the rate it pays its
long-term workers.
Sub-Zero, which makes refrigerators, freezers and ovens, warned its workers
last month that it might close one or more factories in Wisconsin and lay off
500 employees unless they accepted a 20 percent cut in wages and benefits.
Management warned that it might transfer those operations to Kentucky or
Arizona, saying it needed lower costs because sales were weaker than hoped.
The pain is felt across industries. At the Seattle Symphony, musicians have
taken a 5 percent pay cut, while ABF Freight System, a major trucking company,
has asked the Teamsters
to agree to 15 percent less. The St. Louis Post-Dispatch has lowered pay 6
percent, while Newsday
has gotten its staff to accept a 5 to 10 percent pay cut.
While most of the pay cuts seem to hit unionized workers, David Lewin, a
professor of management at the University
of California, Los Angeles, who has written extensively on employee
compensation, says some cuts are also quietly taking place among nonunion
employers.
Reed Smith, a firm with 1,500 lawyers, has cut salaries for first-year
associates in major cities to $130,000 from $160,000. Warren Hospital, a
nonunionized facility in Phillipsburg, N.J., ordered pay cuts of 2 to 4 percent
because lower Medicaid
reimbursements had squeezed the hospitalfs finances.
Fast-rising pension and health costs are making benefit costs grow more rapidly than wages, some employers say, and cutting wages is often easier than other ways to pare labor costs. But some workers say these cuts are unfair at a time when corporate profits and employee productivity have risen strongly.
Sometimes unions and their workers cooperate with management on pay cuts, hoping to recoup some wage increases when conditions improve. In Madawaska, Me., 460 unionized workers accepted an 8.5 percent wage cut in May to help keep their paper mill in business.
“Workers, of course, do not like to have their pay cut, but I think that workers’ major concern now is, ‘Do I have a job?’ ” Professor Lewin said. “If the unemployment rate were lower, we’d see a lot more resentment toward pay cuts.”
But workers sometimes fight back — particularly if an employer doesn’t show signs of distress.
In Albuquerque, where the mayor pushed through pay cuts to bridge a $66 million budget deficit, the largest union of municipal workers is suing, arguing that the mayor’s plan should include furloughs.
The mayor, Richard J. Berry, rejected that idea. “You want to keep people employed. You want to preserve public services. And you don’t want to raise taxes,” he said. “When you’re trying to lower the cost of government while maintaining services, furloughs don’t do the trick.”
Albuquerque would have to trim at least 100 jobs without the cuts, he said, which top out at 3.5 percent for employees earning more than $90,000. Those earning under $30,000 will not be affected.
At the Mott’s apple juice and sauce plant in Williamson, N.Y., 30 miles east of Rochester, 300 unionized workers have been on strike since May 23 over management’s demands for a $1.50-an-hour wage cut, a reduction in company 401(k) contributions and higher employee contributions to health insurance. The strikers are seething over management’s demands because the plant has been profitable and Mott’s corporate parent, the Dr Pepper Snapple Group, reported record profits last year.
“They keep piling more and more work on us, but they want to pay us less and less,” said Michele Morgan, a Mott’s employee. “It’s a slap in the face.”
Chris Barnes, a company spokesman, said the Mott’s employees were overpaid, at $21 an hour, given that the average in the area for food manufacturing workers was $14 an hour. The union disputes those figures.
“Our only objective,” Mr. Barnes said, “was to continue to enhance the competitiveness and flexibility of our operations.”