General Motors and the United Auto Workers union agreed last week on a new wage structure that works out to a 20 percent wage cut for GM employees, Steven Pearlstein writes. It was a small news story last week, but it represents a microcosm of the economy. With nearly one fifth of workers unemployed or under-employed, the best way to save jobs and boost productivity in the short term is for workers to accept lower wages.
This shouldn't be big news. In economics, prices fall with demand. Demand is down. The price for work -- wages -- should be down, too. But wages have a tendency to flat-line, not fall, in recessions. Workers refuse to work at lower pay and employers are afraid to lose good workers by demanding pay cuts. So instead of falling wages, you get falling employment.
Pearlstein suggests we all "look for creative new wage structures" to get the economy rolling again. That means "look for ways employers can pay employees less money." There are a couple ways to do this. Some we've tried, and some we haven't. We have tried hiring more part-time workers, off-shoring more jobs, and adding cheap positions. We haven't tried "job-sharing," the German plan where government and employers split the check for workers to keep more people in their old jobs even when demand for their product falls.