Why Lawyers and Truckers (and the Rest of Us) Should Accept Pay Cuts

Some research indicates that recessions would be shorter if pay cuts were workforce-wide.

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Amid the multitude of layoff announcements in the past year, we've heard a quiet chorus of calls for something different--something that would cut costs in a recession without destroying livelihoods.

The Teamsters have tentatively agreed to a 10 percent pay cut for all union workers at major trucking company YRC Worldwide. While the union members themselves won't finish voting on the change until next Tuesday, the agreement with the tough-minded Teamsters is significant.

The Washington Post's Steven Pearlstein explains why:

The hard-nosed calculation made by Teamster officials is that, with YRC's financial viability at stake, it is wiser and fairer to spread the pain among all active workers rather than force the company to lay off even more workers, or refuse to take a cut and possibly force the company into a bankruptcy reorganization in which workers and retirees would likely take even bigger hits.

The price of labor generally doesn't flex with supply and demand early on in a recession--which gives rise to unemployment trends like the kind we're seeing now as companies cut rather than adjust. But Pearlstein points to research done by MIT economist Martin Weitzman, who found that workforce-wide pay cuts of the sort to which the Teamsters have tentatively agreed would actually shorten the duration of recessions.

Pearlstein notes that law firms could use a similarly broad compensation tool to slash expenses. "You may have read that in recent years, the competition among major law firms to attract top talent became so intense that first-year associates were paid as much as $180,000, plus bonus, at the top Wall Street firms--in some cases, more than federal judges make," he writes.

(It's worth noting that Chief Justice John Roberts is, however, hoping to improve the situation for federal judges. He has asked Congress to approve an increase in pay that would cover cost-of-living increases.)


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