ST PAUL, Minn. — The Washington Post is reporting that at least four million private-sector workers have had their pay cut during this pandemic. They also say those cuts are most rapidly happening in white-collar industries, making it interesting as white-collar workers are the last to be subject to economic downturns.
Four million is a staggering number of Americans who are now facing reduced pay or reduced hours. Not quite fired but not making as much as they were before.
"While this seems really big, I dug into the data a bit more and I was surprised that we were pretending this was something unexpected," Tyler Schipper said. Schipper is an assistant professor of Economics at the University of St. Thomas.
He said these cuts are happening because the world hasn't dealt with a COVID-19 pandemic before. The Great Recession and the coronavirus, they just aren't the same.
"This is a public health crisis that's driving this and it makes it interesting that the best economic indicator looking forward isn't necessarily the unemployment rate but it's going to be what's happening to the coronavirus at any given point," Schipper said.
That looming uncertainty too is at a higher degree, according to Schipper.
"There's uncertainty about how long this will last," he said. "They want to keep their engagement with employees because they worked hard to get them in a tight labor market and they don't want to fire them until they have to. So hopefully, this is a least worst outcome for a lot of employees."
So why is it that the white-collar jobs are facing the pay cuts?
"There are certainly exceptions to that," he said. "The restaurant industry is one of those big exceptions where they're not considered white-collar workers but are also seeing huge layoffs in the industry. Some other industries considered blue-collar workers for instance, manufacturing--there's been less of that being considered essential industry but it's also been an industry that has been less subject to shut downs in areas because they are focused on manufacturing and how they can socially distance in those places."
Although companies seem to be loyal to themselves only, Schipper said pay cuts are still better in the long run than being fired, not just for individuals but for the economy.
"I don't want to make the firm out to be the bad guy here," he said. "There's the other side to this which is, suppose that firms continue to pay everyone what they were making before. What we would see is firms start to go bankrupt and everybody loses their job."