Salaries Get Chopped for Many Americans Who Manage to Keep Jobs
- Pay cuts, typically rare in a crisis, may delay U.S. recovery
- They also upend a decades-old economic idea of ‘sticky wages’
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Companies across the U.S. are cutting salaries as they fight to survive the coronavirus, upending a key assumption in modern economics and raising another hurdle to rapid recovery.
The hard numbers won’t be in for months, but anecdotal evidence is piling up. On earnings calls, big businesses including The Container Store Group and Lyft have cited what they say are temporary salary reductions. Federal Reserve officials also have found plenty of supporting evidence.
The pandemic has triggered unemployment on a scale not seen since the Great Depression. Pay cuts for Americans who’ve managed to hold onto their jobs may hobble the return to normal. People will have to use a bigger chunk of their income for fixed obligations such as housing and other debts -- leaving less for the kind of spending that can help spark the economy back into life.
“It’s one of the reasons why we don’t expect a so-called V-shaped recovery,” said Michael Gapen, chief U.S. economist at Barclays Plc in New York. Americans taking pay cuts “might have little, and in some cases maybe nothing, left over after that for discretionary purchases.”