Economic Wisdom to Apply in Your Twenties

Chapter 49

Chapter 6 Section 5 Wages can only be raised but not lowered

On May 2007, 5, more than 11 employees in the fixed-line department of a German telecom operator went on strike.These employees mainly come from among the employees that the company plans to transfer to the new service division of T-Service.The strike, which is mainly concentrated in the western German states of North Rhine-Westphalia, Hessen and Lower Saxony, affects the company's call centre, line installation and technical service departments.The main reason for the strike was the reduction in wages after the transfer.

In fact, as early as April 2007, the company had already encountered "warning" strikes by thousands of employees, which spread to 4 states across the country.The purpose of these two strikes is the same, aiming to continue to oppose the restructuring plan proposed by the company's board of directors and protest the 13% salary cut.The striking employees worried that the company's years of mismanagement would be borne by them. They hoped to exert pressure through the strike so that their rights and interests could be protected during the restructuring process of the enterprise.

Similar incidents are not uncommon in any country, and the reasons are surprisingly the same - all because employees are dissatisfied with the downward trend of wages.In fact, the matter of "salary cut" is the same for everyone. Suppose you go to work tomorrow and your boss informs you that the economic situation is not good, and your salary will be reduced by 200 yuan, or even if it is only 100 yuan, it will not be easy for you to accept it calmly, right?
In fact, it is not too much to say that if the benefits are better, the salary will be raised, and if the benefits are not good, the salary will be reduced appropriately.But in most cases it is: wages are only allowed to rise but not lowered.

The market economy follows such an economic law: If the supply of goods exceeds the demand, the price will be lowered.But wages are an exception in the U.S. market, which is rarely affected by recessions.When the economy is not good, the boss may have little or no salary increase, or may simply fire some employees, but rarely cuts the salary of existing employees.

Why doesn't wages obey the economic laws of supply and demand?Why are American companies able to lay off workers batch after batch but are unwilling to take salary cuts for existing employees to avoid layoffs?Salary cuts can avoid or largely avoid layoffs.Wouldn't it be the best of both worlds for everyone to implement flexible wages?
This seemingly simple question is actually a well-known conundrum that economists have faced for many years.

In the labor market, wages should be determined, like all other commodities, by the relationship between supply and demand for labor, and the higher the demand for labor, the higher the wages.On the contrary, wages are low.But the actual situation is that wages lag behind changes in the external economic environment, and often cannot sensitively reflect changes in labor supply and demand and make timely adjustments.

Economists call this phenomenon the "wage rigidity principle".They believe that wages could have fluctuated up and down.But businesses believe that if wages drop too low, workers will choose to leave – because they believe that no work is better than low-paying work.So, salary cuts are harmful, and it will make valuable employees that companies want to keep find other jobs.

Other economists explained that some older senior employees within the firm were unwilling to take pay cuts and were pressuring management to fire "new hires".In fact, the layoffs by American companies in recent years have almost always started with senior employees.The high salaries of senior employees became the burden of the company's turnaround, not the relatively lower wages of new employees.

The most convincing and creative explanation for wage rigidity was put forward by Truman Biaoley, professor of economics at Yale University.Biaoley, one of the most eminent mathematical economists in the United States, believes that: "With one exception, my findings do not support any existing economic explanations. The exception is that salary cuts will greatly damage the morale of employees and hit them enthusiasm for work.” If the economy is not good, salary cuts will make employees suspect that the management is taking advantage of the fire.While a layoff also hits motivation, its impact is less severe and less prolonged than a pay cut.

As one manager said in an interview, "Employees who are fired are probably in a worse mood. They're out the door, and it's not my concern. I'm more concerned about the mood of the employees who stay in the company." how."

In addition, the wages and remuneration of enterprises and employees are often stipulated in advance through contracts. If they are changed at will, they will be sued by the parties and punished by law.The social unemployment problem caused by the layoffs of enterprises is mainly borne by the government.Therefore, both managers and employees are well aware of the truth that wages can only be raised but not lowered - and when layoffs become a more direct management method than salary cuts, it is not difficult for us to understand why stable wages and generous benefits Civil servant positions will become the "golden rice bowl" sought after by more and more young people.

Wisdom Pieces: Posting Salaries
"Sunning" itself is carried out in the sun, which is public.Posting wages refers to netizens publishing their income anonymously on the Internet.The popularity of posting wages on the Internet reveals the following social problems:

1. Increased living burden causes income sensitivity.As the proportion of education, medical care and housing expenditures in the total consumption expenditure of residents continues to expand, residents have strong expenditure expectations arising from this.Residents with lower incomes feel more burdened in life, and the heavier the burden, the higher their sensitivity to income—"posting wages" is a direct manifestation of this sensitivity.
2. Psychological anxiety caused by excessive income gap.In the salary distribution, there are obvious gaps between urban and rural areas, regions, and industries, and the resulting sense of injustice is also the strongest. The prevalence of "posting wages" is actually the natural expression and vent of many people's psychological anxiety.

(End of this chapter)