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Pay Cuts for Workers Replacing Furloughs

As Steven Greenhouse argued in a recent New York Times article, the practice of instituting furloughs that began with the recession is now “being replaced by a highly unusual tactic: actual cuts in pay” (“More Workers Face Pay Cuts, Not Furloughs” NYT: Aug 3, 2010). Governments at both the local and state level—and some companies as well—have adopted cost-saving measures that force workers to put in the same amount of hours and perform the same total work for less pay.

A recent report analyzing job statistics in June registered a small drop in overall wages and salaries, which came about partly through employees working fewer hours. This new round of wage rollbacks has raised concern that the economy has further destabilized, and could even be headed toward deflation.

 

The most frequent occurrence of pay cuts can be found within state and local governments; these institutions are struggling under enormous budget pressures and have often already attempted to relieve their financial woes through furloughs (cutting worker pay in exchange for days off). Faculty at many public Universities have agreed to pay cuts up to 8 percent, and states like New York are pursuing a wage rollback of 4 percent for the majority of state employees. Similar pay cuts can be seen among state troopers, teachers and public health workers.

Greenhouse cites a 2010 survey conducted by the National League of Cities, which reports that “51 percent of [cities] said they had either cut or frozen salaries of city employees, 22 percent said they had revised union contracts to reduce some pay and benefits, and 19 percent said they had instituted furloughs.

Some businesses are also cutting workers’ pay, often to help stay afloat or to eliminate their losses, although a few have seized on the slack labor market and workers’ weak bargaining power to cut pay and thereby increase their profits and competitiveness.”  Also troubling is the recent report by the Bureau of Labor Statistics showing that wages in the US have remained flat for 18 months now.

One significant factor behind this trend is that rapidly rising pension and health costs have been causing benefit costs to grow more quickly than wages.  Many employers report that reducing wages is simpler than other methods of trimming labor costs. However, some employees claim that these cuts are not fair within a context where corporate profits and worker productivity have risen significantly.

Not uncommonly, unions and their members agree to pay cuts in hopes of recouping some wage growth when conditions eventually improve. In one company profiled in Green’s report, “460 unionized workers accepted an 8.5 percent wage cut in May to help keep their paper mill in business. As an analyst explained, ‘Workers, of course, do not like to have their pay cut, but I think that workers’ major concern now is, Do I have a job? … If the unemployment rate were lower, we’d see a lot more resentment toward pay cuts.”

Yet workers often resist these measures as well, especially in cases where their employers don’t seem to be in much economic distress.

This is exactly what lies behind the ongoing strike at Mott’s Apple Juice facility in Williamson, New York.  The strikers, involving 300 unionized workers, walked off the job back on May 23; they are protesting management’s demands for a wage reduction of $1.50-an-hour, a cut in company 401(k) contributions, and higher levels of employee contribution to health insurance costs.  These demands are particularly offensive to workers because the plant has remained profitable throughout the recession, and because Mott’s parent company, Dr Pepper/Snapple Group, reported record profits last year. As company worker Michele Morgan explained, “They keep piling more and more work on us, but they want to pay us less and less… It’s a slap in the face.” Mott’s company spokesman Chris Barnes countered this charge by claiming that workers were overpaid, and made significantly more than the average wage of $14 an hour for area food-manufacturing employees.  The union has directly challenged those figures.

“Our only objective,” Mr. Barnes said, “was to continue to enhance the competitiveness and flexibility of our operations.”

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Emery Reddy