, Columnist
Pay Cuts Are Better Than Layoffs in This Recession
Covid-19 may be changing the usual thinking about how businesses treat workers in a downturn.
Some layoffs are less permanent than others.
Photographer: Gabby Jones/Bloomberg
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Economists have long explained recessions in part by pointing to the reluctance of employers to reduce workers’ pay. This so-called market rigidity reverberates throughout the economy, creating waves of unemployment and declining growth that are worse than any pay cut.
That’s one reason that the recession caused by the response to Covid-19 might be different: Many companies are actually cutting pay, providing a glimmer of hope that the economy will rebound faster than usual.