March 25th, 2011

Slate magazine recently asked readers to submit essays on grief on how it affected their own lives. As with the loss of a loved one, a loss of wages can also propel people into the uncharted chasms of fright and despair. Imagine someone late in life taking a pay cut. Needing the money, what does the employee do? Lose it all or take a chance at surviving until his days run out or something else comes along.

He’ll take the cut and persevere but statistics have determined that cutting workers pay also cuts their productivity in the workplace. Once they feel devalued, research shows, they devalue their contribution to their employer. This is simple human behavior and it surprises me a study would have had to be conducted to be conclusive. Devalued people produce less. Had they been overpaid, where in order to keep up with the status of what they’re grossing, they tend to produce more than is expected of them.

The current business hint is to downsize peoples salaries, spreading the wealth across a broader spectrum of employees while hopefully maintaining the acumen of worker whose pay has been cut.

Sometimes it works. It all depends how much workers will absorb before it becomes impossible to continue to produce at wages they can’t afford. When that happens both labour and capital will bear the burden of the consequences.

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