A new trend is being noticed in the labor sector – instead of furloughs that had been common during the recession, currently wages are being cut. It is not just some firms but the governments at the local and state level are compelling the employees to put in more work for either the same or less remuneration. These are part of measures being taken to save costs and are often said to be the last step being taken to prevent retrenchments and layoffs.
A recent report indicated a slight fall in wages as well as in salaries overall, in last June. This was because the employees worked for less number of hours. Although the average rate per hour of work continues to be higher in comparison to the time when recession started, the recent report raises concerns about the weakening of the economy and fears of an impending deflation. The latter is a situation when the prices of goods and other assets fall but the people do not spend. The consumers wait for prices to drop further.
Japan had suffered it during a decade. It seems unlikely that this situation will develop in America but some of the policy makers of the Federal Reserve did voice concerns about this possibility.
The cuts in pay are becoming common with the state and local administration – the latter being under tremendous pressure to balance their budgets. Huge pension costs are also weighing down on the states. They had previously resorted to furloughs by reducing working hours and cutting pay. The people are putting up with it because of warnings of layoffs if they do not comply.
At University of Hawaii the professors have agreed to accept 6.7% cut in their salaries. The pay of 6,000 employees has been reduced by 1.8% in Albuquerque. The Governor of New York David A. Paterson is now seeing 4% cut on wages for good number of state employees. Vermont’s state troopers agreed to have their pay cut by 3%. Teachers in the school districts of Capistrano and Pacheco of California have decided on making salary cuts.
Gary N. Chaison of Clark University said, “We’ve seen pay freezes before in the public sector, but pay cuts are something very new to that sector”.
It is not possible to determine how many of the employers have sliced the pay of their workers because of lack of government statistics.
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