Are layoffs or wage cuts better for worker morale? on clarkhoward.com

When times are tough for businesses, the economic theory of "wage stickiness" holds that it is better to lay some workers off and preserve the wages of those who remain vs. cutting everyone's wages to ensure there are no layoffs.

But some employers are experimenting with flipping that equation on its head. Instead of doing layoffs, they're cutting wages across the board and preserving the headcount.

What do you think? Be sure to vote in Clark's poll and let him know.

Executive producer Christa and associate producer Joel both agree that they'd prefer pay cuts to layoffs. Economists, however, disagree with both of them, arguing that the hit morale takes as your check shrinks is very severe. But as Christa counters, having a skeleton staff that has to do twice the work is depressing too.

We'll leave you with this very inspirational story from Clark's past: When he owned his travel agency, one of his corporate clients was in dire financial straits. The office manager at the company believed so much in the company that she went off the payroll for 2 years. She lived on her husband's salary and actually worked for free for 24 months. When the company recovered, she got her retroactive pay, plus another 50% for her loyalty!

What others are saying

What about both?
My company just did both. Big downer for me. I could take one or the other, but this just tells me that the gravy train reached its last stop and will soon be decommissioned. I only took a 5% pay cut, but that means I have to work 2.5 weeks this year for nothing...

Hey future generations, sorry we already enjoyed the fruits of your labor. Oh wait, I'm only 38, so I have to live in this cesspool for another 40 years. Hey boomers, I hope you enjoyed the fruits of my current and future labor. I hope you have to postpone retirement indefinitely, because the "R word" is not even in my dictionary. In 50 years, you'll just get a puzzled look if you use it. It will cease to be a goal, unless you are a blood-sucking leach banker or politician.

Sorry for the bitterness. I see no reason for any future optimism. The downturns keep getting worse and eventually our fearless leaders will no longer be able to patch up this rickety wagon and the wheels will finally fall off for good.
By DB @ 05/03/09 08:20:58 AMreport abuse
I've gone through both situations within the past 18 mo. and I'd have to say taking the pay cut puts a little less of a damper on morale. The last company I was with went through round after round of layoffs before getting rid of all but the last few of us and constantly waiting for the other shoe to drop was pure torture. It was almost a relief when I was finally laid off. The company I'm with now did a temporary pay cut couched as time off without pay last fall which they've now extended for another 6 months to see if they can get profits up enough to restore the previous pay amounts. While it's been hard juggling bills with less money, it's infinitely preferable to having a skeleton crew trying to do the work of everyone that's no longer there. Plus it feels more like everyone's pulling together to help the company out (we're a smaller company, not a monolith where you feel more like the fat cats are taking advantage), even if it does stink making less. I definitely can't keep making less for the long term, but for now it's the better of two really bad options.
By jbean @ 03/17/09 11:52:49 AMreport abuse
working for free
I would be so afraid to go off the payroll. Most companies, you'd work for free and at the end of the 2 years, you'd just be out 2 years' salary. That 50% bonus would never happen. At least, my husband's last company would stiff you. They bounced his next-to-last payroll check and didn't bother to give him his last one.

Doing something like that would require MAJOR trust.
By Karen @ 03/17/09 03:05:39 AMreport abuse
you're fired, Jetson
Remember the Jetsons cartoon, where tyranical boss Spacely fires hapless George Jetson every episode for any reason and replaces him with a robot? Well, the future is here, and you are history, since nobody needs a worker when all they do is eat donuts, drink coffee, and gossip, while the poor chief executive is out there working hard... Yea, right, he's getting bonuses for playing golf on company time, getting bail outs from the Feds a d pocketing them and lobbying the local congressman not to allow any minimum wage hikes as he stashes his hard stollen loot into Swiss bank accounts.
Fire the overpaid management or reduce their paychecks first; only after they are depleted should one even consider the same for workers.
By fat cat @ 03/16/09 10:31:10 PMreport abuse
wages
Fire the PrezBo supporters.
By Lee @ 03/16/09 06:02:21 PMreport abuse
Vonage
they are a rip off and provide poor customer service with hiden clauses after only four day of signing up with them they charged my $70.00 when I decided to canc on the fourth day!!!!!!
By Brenda @ 03/16/09 05:58:13 PMreport abuse
Layoffs or cut pay?
A hybrid seems the best solution. There are those willing to retire or move on. The rest should stay at a reduced rate. When business picks up again there will be no need to train and no overworked employees. You can hit the ground running.
By Larry Ballard @ 03/16/09 05:15:19 PMreport abuse
Both
My wife works for a family owned business. They have done the worst of both worlds. The started with layoffs and have now cut salaries while laying off more people. I believe this is the end game for this company and they are just trying to not pay any more than necessary while they either shop the company or prepare it to close. Any opinions?
By Cdog @ 03/16/09 09:03:08 AMreport abuse
Layoffs Vs. Wage Cuts
Wage Cuts instead of Layoffs sounds warm and fuzzy. But a huge issue is that so many companies and people got "fat" and inefficient while living in the "imaginary wealth" era of the last 5-10 years, that companies are filled with employees that don't do anything or pretend to work to get a paycheck. Its not fair to keep these people while penalizing the hard workers that actually keep the company running.

This is in no way relevant to every company and situation, and I know many good, hard workers have gotten laid off too in this mess. But I would be really ticked off if my salary got cut to keep my company running inefficiently.
By Brian L @ 03/14/09 03:58:35 PMreport abuse
lay off vs pay cut
I think even going one step further is best. ask for voluntary layoffs. sometimes employees are thinking about leaving for whatever reason (looking for another job, retirement or just some time off) and if they can collect unemployment for awhile so much the better.
And I do think pay cuts or reduced hours/days off without pay are a good choice, especially if all the employees that might be laid off are good employees. I think pay cuts on a modest sliding scale depending on pay level is fair, with a promise to reinstate as soon as the economy picks up.
while it is easy to be somewhat selfish if you are not the one laid off, just put yourself in the position of those being potentially laid off. it can be devistating to some people.
By brian @ 03/13/09 02:29:04 PMreport abuse

What about both?

My company just did both. Big downer for me. I could take one or the other, but this just tells me that the gravy train reached its last stop and will soon be decommissioned. I only took a 5% pay cut, but that means I have to work 2.5 weeks this year for nothing...

Hey future generations, sorry we already enjoyed the fruits of your labor. Oh wait, I'm only 38, so I have to live in this cesspool for another 40 years. Hey boomers, I hope you enjoyed the fruits of my current and future labor. I hope you have to postpone retirement indefinitely, because the "R word" is not even in my dictionary. In 50 years, you'll just get a puzzled look if you use it. It will cease to be a goal, unless you are a blood-sucking leach banker or politician.

Sorry for the bitterness. I see no reason for any future optimism. The downturns keep getting worse and eventually our fearless leaders will no longer be able to patch up this rickety wagon and the wheels will finally fall off for good.

By DB @ 05/03/09 08:20:58 AMreport abuse

I've gone through both situations within the past 18 mo. and I'd have to say taking the pay cut puts a little less of a damper on morale. The last company I was with went through round after round of layoffs before getting rid of all but the last few of us and constantly waiting for the other shoe to drop was pure torture. It was almost a relief when I was finally laid off. The company I'm with now did a temporary pay cut couched as time off without pay last fall which they've now extended for another 6 months to see if they can get profits up enough to restore the previous pay amounts. While it's been hard juggling bills with less money, it's infinitely preferable to having a skeleton crew trying to do the work of everyone that's no longer there. Plus it feels more like everyone's pulling together to help the company out (we're a smaller company, not a monolith where you feel more like the fat cats are taking advantage), even if it does stink making less. I definitely can't keep making less for the long term, but for now it's the better of two really bad options.

By jbean @ 03/17/09 11:52:49 AMreport abuse

working for free

I would be so afraid to go off the payroll. Most companies, you'd work for free and at the end of the 2 years, you'd just be out 2 years' salary. That 50% bonus would never happen. At least, my husband's last company would stiff you. They bounced his next-to-last payroll check and didn't bother to give him his last one.

Doing something like that would require MAJOR trust.

By Karen @ 03/17/09 03:05:39 AMreport abuse

you're fired, Jetson

Remember the Jetsons cartoon, where tyranical boss Spacely fires hapless George Jetson every episode for any reason and replaces him with a robot? Well, the future is here, and you are history, since nobody needs a worker when all they do is eat donuts, drink coffee, and gossip, while the poor chief executive is out there working hard... Yea, right, he's getting bonuses for playing golf on company time, getting bail outs from the Feds a d pocketing them and lobbying the local congressman not to allow any minimum wage hikes as he stashes his hard stollen loot into Swiss bank accounts.
Fire the overpaid management or reduce their paychecks first; only after they are depleted should one even consider the same for workers.

By fat cat @ 03/16/09 10:31:10 PMreport abuse

wages

Fire the PrezBo supporters.

By Lee @ 03/16/09 06:02:21 PMreport abuse

Vonage

they are a rip off and provide poor customer service with hiden clauses after only four day of signing up with them they charged my $70.00 when I decided to canc on the fourth day!!!!!!

By Brenda @ 03/16/09 05:58:13 PMreport abuse

Layoffs or cut pay?

A hybrid seems the best solution. There are those willing to retire or move on. The rest should stay at a reduced rate. When business picks up again there will be no need to train and no overworked employees. You can hit the ground running.

By Larry Ballard @ 03/16/09 05:15:19 PMreport abuse

Both

My wife works for a family owned business. They have done the worst of both worlds. The started with layoffs and have now cut salaries while laying off more people. I believe this is the end game for this company and they are just trying to not pay any more than necessary while they either shop the company or prepare it to close. Any opinions?

By Cdog @ 03/16/09 09:03:08 AMreport abuse

Layoffs Vs. Wage Cuts

Wage Cuts instead of Layoffs sounds warm and fuzzy. But a huge issue is that so many companies and people got "fat" and inefficient while living in the "imaginary wealth" era of the last 5-10 years, that companies are filled with employees that don't do anything or pretend to work to get a paycheck. Its not fair to keep these people while penalizing the hard workers that actually keep the company running.

This is in no way relevant to every company and situation, and I know many good, hard workers have gotten laid off too in this mess. But I would be really ticked off if my salary got cut to keep my company running inefficiently.

By Brian L @ 03/14/09 03:58:35 PMreport abuse

lay off vs pay cut

I think even going one step further is best. ask for voluntary layoffs. sometimes employees are thinking about leaving for whatever reason (looking for another job, retirement or just some time off) and if they can collect unemployment for awhile so much the better.
And I do think pay cuts or reduced hours/days off without pay are a good choice, especially if all the employees that might be laid off are good employees. I think pay cuts on a modest sliding scale depending on pay level is fair, with a promise to reinstate as soon as the economy picks up.
while it is easy to be somewhat selfish if you are not the one laid off, just put yourself in the position of those being potentially laid off. it can be devistating to some people.

By brian @ 03/13/09 02:29:04 PMreport abuse

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Mar 13, 2009 -- Are layoffs or wage cuts better for worker morale?

What others are saying