During Recessions, You’re More Likely to See Layoffs than Pay Cuts

January 12th, 2009 by lewis

Liz W over at The Inside Job has a great post on why you’re more likely to see companies reduce labor costs with layoffs rather than pay cuts. ¬†Here are the three cited reasons:

  1. By laying off the worst performers, the company can increase workforce productivity.  (Here I assume it is on a per unit basis, but perhaps the laid off workers actually hurt company productivity.)
  2. Employees may retaliate to a pay cut by working less.
  3. Employees’ morale may go down if they get a pay cut.

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