Would Wage Cuts Help Get Americans Working?

Would you take a 20 percent pay cut to save your job?

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Last week, GM and the United Auto Workers union came to an agreement that would allow a Michigan car plant to produce a sub-compact car as long as the plant's employees agreed to, on average, a 20 percent reduction in wages. The move was highlighted as a reasonable compromise by The Washington Post's Steven Pearlstein, who pondered whether this type of wage-cutting would be the most realistic way of saving jobs. Wage cutting, he argued, would at least allow workers to take jobs "at the globally competitive, market-clearing wage and hope to build back up from there." Naturally, other pundits had their own ideas about the best way to rebuild American industry:

  • Wage Cuts May Be the Only Way to Get America to Work  The Washington Post's Steven Pearlstein concludes that the GM-UAW deal is a microcosm of American industry: "There are lots of reasons why American companies like GM have lost market share....but one is that in too many industries, our labor costs are now too high to be globally competitive. Reducing wages and benefits in those industries would not only help to create and save jobs, but would also force a further reduction in consumption and living standards that is necessary to bring the U.S. economy back into balance."
  • Nominal Wage Cuts Aren't An 'Attractive' Option  ThinkProgress's Matthew Yglesias explains: "If you force nominal wage cuts on an indebted population, you get an unbalanced deflation where existing debt obligations come to consume a larger and larger share of income. Alternatively, if you reduce real compensation via currency devaluation or higher inflation you reduce income and debt alike allowing us to dig out of the balance sheet hole more quickly."
  • There Are Other Creative 'Wage Structures'  The Atlantic's Derek Thompson notes some strategies that haven't really been tried to get the economy rolling again: "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. We also haven't really tried direct hiring....If work is cheap, and out-of-work construction workers are plentiful, and we're paying them already to be unemployed, why not continue to pay them ... to work!"
  • The Lower Wage Earners Don't Have To Be the Ones With Wages Cut   Dean Baker at Seeking Alpha takes issue with Pearlstein's "implication" that the "wages of less-educated workers more generally must fall." Actually it was government intervention that helped shield the salaries of the "investment bankers, corporate executives, and newspaper columnists" that the Washington Post columnist mentions. Baker cites the bank bail-out, the lenient rules of corporate governance and laws that shield highly-educated professionals from international competition as examples of the government intervention to help these high earners. "By contrast," he argues. "Trade policy was deliberately designed to put U.S. manufacturing workers in direct competition with the lowest paid workers in the world."
  • Our Most Enduring Economic Problem was highlighted by Pearlstein, argues Mother Jones' Kevin Drum. The Washington Post columnist argues that America needs to "grab a bigger share of global markets" and the the way to do that is through exports. Drum doesn't see that happening unless the dollar continues to fall "a lot" and it makes "U.S. exports to the rest of the world cheaper and everyone else's export to us more expensive."
This article is from the archive of our partner The Wire.