“It’s a real kick in the shins,” said Vagedes.
Vagedes said he may have fallen behind on his mortgage payment, but all other bills and expenses have remained the same. “Doing everything with 20 percent less is a challenge,” he said.
The longer the closings continue and the economy lags, the more likely the temporary cuts will become permanent or lead to more layoffs, economists warn. If companies resorted to cutting wages as a matter of survival, “then the next thing is I have to cut [jobs] – I have no other choice, ”said Zandi.
Unlike job losses, which have disproportionately affected low-income workers, wage cuts are primarily affecting workers in white-collar industries, according to the ADP data study. Investigators said three-quarters of the pay cuts are among the top 40 percent of wage earners.
And some of the largest companies have participated. Julia Coronado, a former Fed economist who founded the Macropolicy Perspectives firm, tracked American companies with market limits in excess of $ 1 billion and found that 42 percent of the 260 companies that provided details of the profits made between April and July were cutting wages.
Lyft announced three-month salary reductions for all salaried employees ranging from 10 to 30 percent, while retail giants Best Buy and Gap focused revenue reductions on executives.
The measure to reduce wages reflects that employers initially felt that the economic recession was going to be short-term.
At first, when the closings were closed, “there is a will to cut wages because you think it will be temporary,” said Diane Swonk, chief economist at Grant Thornton. “It really underlines how unique this recession is: People saw it as a transitional event.”
But the latest data now suggests that the recession is likely to deepen and last much longer than initially anticipated, as coronavirus cases hit record levels and most of the country has paused or reversed reopening plans.
Growth in consumer services spending is expected to slow in July and August, Goldman Sachs said in an analysis on Friday. New jobless claims have hovered above 1 million, an unprecedented level, for 17 consecutive weeks. And the number of American households expecting to lose income over the next month has begun to rise in recent surveys after six consecutive weeks of declines, according to Census data.
“Now what we are concerned about is that some of those temporary pay cuts could become permanent or lead to bigger layoffs in the future,” Swonk said.
Economists say it is too early in the crisis to know for sure if wage cuts are here to stay, although it is difficult to expect wages to rise as much of the economy remains closed and as consumers are too concerned about the coronavirus to regularly resume behavior and expense.
Some of the biggest cuts are likely to be in the short term, such as companies that cut executive salaries to zero, Coronado said. But other reductions could persist.
“We have seen an increase in the percentage of companies reporting more permanent layoffs,” he said, “so if that is on the rise, then some of these pay cuts may prove to be more durable.”
