The periods of downturns and recessions are an inevitable part of a business cycle. Even highly successful companies experience challenges caused by both predictable and unpredictable external and internal conditions and events. Such periods are associated with organizations’ actions that may have negative consequences. In particular, to increase profitability, businesses traditionally hire more people; however, during an economic recession, they face the dilemma of whether to lay off some workers and keep wages unchanged or cut wages for all workers, while keeping them at the same time.
From a personal perspective, cutting wages is a more humanistic approach typical of sustainable companies. While it is associated with partial financial loss, job loss leads to more severe consequences, including divorces, interpersonal violence, substance abuse, and suicides. Moreover, lay-offs are associated with low morale and decreased productivity.
It goes without saying that cutting wages may lead to lower commitment and decreased motivation; however, layoffs create an atmosphere of panic and fear that has a more devastating effect on performance. In addition, cutting ages is supported by employees – thus, according to Confino (2023), the majority of workers who face a layoff during a recession would prefer a 25% cut of their wages to keep their jobs. Even highly talented and qualified employees do not want to risk evaluating their changes to find another workplace during hard times.
At the same time, an opportunity to choose may be regarded as an alternative for companies that value their employees’ opinions, needs, and demands. In this case, management should clearly articulate the situation and provide workers with the right to decide whether they accept cutting wages and staying in a company or they prefer to quit. In this case, a business may benefit from leaving less productive employees and arranging their efforts more productively if it faces the necessity to persuade the most talented workers to stay.
Reference
Confino, P. (2023). Many workers facing a lay-off would accept a 25% pay cut to keep their jobs—but 97% of bosses don’t even ask. Even the researchers are stumped why. Fortune.