- In the earliest months of the coronavirus pandemic, businesses cut worker wages twice as much as they did during the Great Recession, economists led by Tomaz Cajner of the Federal Reserve Board wrote in a recent paper.
- Wage cuts were concentrated among higher wage workers, compared with job losses which were more prevalent for the lowest-paid group, the study found.
- In addition to pay cuts, businesses have also forgone regularly scheduled wage increases for other employees.
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Businesses are cutting worker wages nearly twice as much in the coronavirus pandemic as they did amid the Great Recession, according to a recent study prepared for the Brookings Papers on Economic Activity.
In the earliest months of the pandemic, about 11.4% of workers received nominal wage base cuts. That’s roughly double the 6% that had wages slashed during the Great Recession, economists led by Tomaz Cajner of the Federal Reserve Board wrote in a recent paper.
“So far during the Pandemic Recession, base wages are increasing much less and decreasing much more than they did during the Great Recession,” the economists wrote.
The study underscores the decisions many businesses made in the early months of the year to stay afloat amid lockdowns to contain coronavirus and the ensuing recession. While many companies have laid off workers, others have cut costs by reducing pay and foregoing raises for their employees – a Great Recession trend that also showed up in the coronavirus crisis early on.
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Using administrative data from ADP, the economists found that in 2019, nearly 80% of firms increased the base wages of continuously employed workers in the first three months of the year. In the same three months of 2020, however, firms adjusted the wages of only 53.7% of workers, and one-fifth of those changes were wage cuts.
The study found that wage cuts were most common for the highest earners, whereas job losses were disproportionately concentrated in the lowest-paid group.
“Over three quarters of all nominal wage cuts were concentrated in workers in the top two deciles of the wage distribution,” the economists wrote.
The study also found that in addition to pay cuts, firms skipped regularly scheduled wage increases for others. Wage freezes were the least likely for high earners but common throughout the wage distribution in 2020.