Pandemic Wage and Hour Cuts Could Become Permanent If Crisis Persists

at Politico, joins us for these widespread wage cuts. Thanks for joining us, Megan, thanks for having me. We continue to monitor the economy as we go through the coronavirus pandemic. One of the things that a lot of people are focused on is job losses and people getting unemployment benefits. But another thing we should be keeping an eye on also are wage cuts. A lot of people have taken cuts to their pay throughout this thing, thinking, you know,

it might be a short term solution. But the pandemic continues on and on and on, and there's a worry that a lot of these pay cuts could be permanent. Megan tell us about this, please, This is a trend that we're starting to see, and there's your federal data on this. Really federal data actually shows that wages are rising, but that's only because low wage workers are just unfortunately

losing their jobs. And so what we're starting to see now is economists putting out different studies and estimates, and likely at least four million, maybe up to seven million workers have taken cuts to their pay over the past several weeks a couple of months now, likely because their employer, you know, looked at their balance sheets and said, maybe, as a way to preserve jobs, we're just going to have everybody take a ten percent cut or twenty percent cut,

whatever it might have been. The issue, though, is that now you know that trend is growing. For one, it tends to be a really rare move in the US because employers know that employees obviously hate wage cuts. It's

bad for morale, it can be bad for productivity. But now that these shutdowns are really lasting longer than many of us anticipated in March and April, that they might either become permanent at least last for you know, another several months, perhaps through the end of the year, or that they might lead to layoffs because if if an employer in April said that I need to cut income, and now you know they're in really dire straits and

need another move, another way to save money. The only step left really is to probably lay off some markers. And you look at it from the perspective of both sides. The employee their business tells them, hey, we need to cut your pay just to make it through. You say, okay, I have no other option. I probably am not going to be able to find another job that will pay me the same and this is going to be short terms,

so you agree to it. And then as you mentioned just right now, for the employer, they're gonna go with this option, hopefully before they start firing people flowing laying people off. So they both kind of feel like they have no other option but to do this. And you look at what the effect is going to be, smaller paychecks, less spending, the recession that's going on would be extended.

So this is a really bad final around because you know, for the reasons you just sent it, it shows that employees feel that they have no better option in as you said, and the New York Federal Reserve actually put out a survey this past week Americans now feel they have a less than fifty percent chance of being able to find a job within three months if they lost their job today, And that's a more than sixteen percentage

point jobs to a year ago. So it really you know, these employees in many cases probably feel lucky that they have a job and they say, Okay, I'll take this pay cut because it means I can keep working and hopefully it's temporary. But we just don't know where things go from here, and it's a worrisome trent for sure. And these cuts generally hit more people in white collar industries. I know the job losses tend to be more low income workers, but these tend to be on the other

side of things. One of those studies I mentioned was put up by some Federal Reserve economists and economists at the University of Chicago, and they found the three fourths of the cut in pay fell within the top of a wage earner. So on one hand, that's someone of a good thing, you could say. You could say these are workers who are more able to weather the cut to their income and might have more wealth to hear them through, or might not be as dependent on their

full paychecks. But on the other hand, these workers are also the ones that tend to be more shielded from an economic recession. And so if these workers in the top four percent are already feeling something like a pay cut, but also really, you know, so something worrying about the depths of the recession and damage to the labor market as well. What are some of the companies that are

going through this? I know my company i Heeart Media did something similar to this, A lot of people took cuts in you know quarter two and quarter three type of thing. Uh, what are some of the other companies that are doing this? So it tends to be pretty widespread and among smaller companies there's no way of totally judging it, but some really big companies have taken part

as well. So I spoke with one economist, Julia Coronado, who tracked US based companies with market caps greater than one billion, so really, really, you know, major companies, and she found that of the ones that were providing details on earnings calls for two percent were announcing that they

were reducing pay between April and July. So some of those on there are lift the rides sharing app announcing reductions for all salaried employees, and other companies were focusing their reductions just on their top executives or maybe their board best buying gaps both did that. So some major names we're doing this, but also you know, we do that just anecdotally. We know that sort of mom and pop shops and smaller companies and restaurants and things were

doing this as well. And so now what's the outlook. We're seeing cases rise. This thing is not going to be over for some time still. I note in the article there was you know, a number of American households expecting to lose income over the next month. That's according to a a recent survey. That number is beginning to rise. So what can we be expecting soon likely expecting the

trend to just increase. I know those University of Chicago economists, for example, are in the process of updating their paper. They're seeing some of those trends really continue and spread

it the longer that this goes on. And we also know that even you know, regardless of what governments do and whether governors decided to actually impose regulations, we know that consumers change their spending habits just based on their own fear of the virus and so as cases rise, regardless of whether there's actual shutdown restrictions in place, we know that as long as the virus is raging the way that it is now, consumers are going to stay inside.

They're going to be spending less money, which of course is good from a public health perspective that they're not going out as much, but bad from an economic perspective that a lot of these businesses and just can't get

back on their feet. And you know, the worrying thing is just maybe companies were able to hang on for a few months, especially smaller businesses, but larger ones as well, And so the longer that this goes on, particularly with no end in sight, really it just becomes harder and harder to really lean on your savings or maybe you've got a loan from the government, but it was short term. It just becomes harder to really hang on without income

coming in that you're really depending on. Megan Casella, economics reporter at Politico, Thank you very much for joining us. Thank you so much for having me. I'm Oscar Ramirez and this has been reopening America. Don't forget effort. Today's big news stories. You can check me out on the Daily Dive podcast every Monday through Friday. To follow us in I Heart radio or wherever you get your podcasts,