As many readers likely know, the number of unemployed workers has approached the dismal numbers of the Great Depression. Although many workers believe that their jobs are still waiting for them, the reality is that those jobs are likely not there anymore. Even if the jobs remain, many workers will be shocked to learn that wages will be reduced along with work hours.

Bloomberg alluded to this reality on its article yesterday (Salaries Get Chopped for Many Americans Who Manage to Keep Jobs). Bloomberg points to anecdotal evidence that suggests companies are or will be reducing wages for returning workers. This will result in a continued depressed economy as disposable income will not be readily available. The American economy is largely run on disposable income like dining out and going to entertainment venues.

America’s workforce is about 20% service industry and it is the hardest hit of all the industries.

But the pain will be felt by almost all other workers. Reduced income trickles throughout society.

According to Bloomberg, companies are cutting salaries by about 10 to 15%. The Bloomberg article points out the phenomena of “sticky wages”. It is the idea that rather than lower wages, companies use the opportunity brought by financial distress to rid themselves of employees who they deem troublesome. Bloomberg labels this as “to get the misery out of the door.”

The phenomena is that rather than cut wages, companies rid themselves of employees they do not want to keep. That is why wages largely remained stables during past recessions. They were incentives for the remaining employees to keep productivity up.

That is until the Covid-19 economic crisis.

Although Bloomberg does not argue this point, it seems like companies have decided to rid themselves of employees they want out the door while also reducing wages on those they want to keep. The pandemic makes it palatable.

Bloomberg quoted the CEO of El Paso-based Helen of Troy, Julien Mininberg, as stating in a recent earnings call with investors, that “our people supported this approach” of sacrificing wages to help continue “driving the business and keeping the company fully operational.”

Because of the pandemic led economic crisis, companies have found that workers are accepting wage cuts as “more palatable” because of the crisis. Without the pandemic, companies would have continued along the path of keeping wages stable while ridding themselves of workers. But the current economic crisis gives company owners the opportunity to cut wages and rid themselves of employees they no longer want.

Bloomberg ends its piece by quoting an assistant professor of economics at City University of New York, J.W. Mason, as stating that the “pay cuts are only going to make” the economy worse.

June remains the pivot point on whether the economy will bounce back this year, or much later.

Martin Paredes

Martín Paredes is a Mexican immigrant who built his business on the U.S.-Mexican border. As an immigrant, Martín brings the perspective of someone who sees México as a native through the experience...