Leonhardt wrote that companies almost never reduce wages in a downturn (thus the “sticky” adjective). Instead, they lay people off.
Salmon notes that yesterday, FedEx said it would cut its wages by 5 percent to 10 percent (20 percent for its CEO), something he contends could be a sign that wages won’t be so sticky this time around.
Fedex is largely non-union, which means that most workers are taking a pay cut. I’m not sure this is necessarily a bad thing, if it avoids layoffs and reductions in service quality, instead spreading the pain around more thinly. But it does point to the possibility that this recession will indeed be different, and that it might mark the beginning of the end of sticky wages.
If falling prices take hold, it seems it will be easier for companies to do the once-unthinkable and cut workers’ pay.
Salmon supports his thesis well here:
There’s been a huge shift in power in recent years from labor to capital: corporate profits have been rising much faster than wages for some time now. It makes sense that capital would make use of its newfound power to reduce labor costs in a deflationary environment of rising unemployment. During the boom, companies laid off workers because those workers demanded, and cost, too much money. Now that workers have lost their negotiating leverage, we might start seeing more across-the-board pay cuts.