Diminishing Wages, Workers and the Recession

Created: August 18, 2010 11:48 | Last updated: July 31, 2020 00:00

Does a recessionary economy mean that workers must necessarily accept lower wages? Last week, The Wall Street Journal got a lot of attention for an article reporting that many businesses are reporting having trouble hiring — despite the fact that five workers are competing for every job opening:

[M]any employers are inundated with applicants. But a surprising number say they are getting an underwhelming response, and many are having trouble filling open positions. [...]

Employers and economists point to several explanations. Extending jobless benefits to 99 weeks gives the unemployed less incentive to search out new work. Millions of homeowners are unable to move for a job because the real-estate collapse leaves them owing more on their homes than they are worth. The job market itself also has changed. During the crisis, companies slashed millions of middle-skill, middle-wage jobs. That has created a glut of people who can’t qualify for highly skilled jobs but have a hard time adjusting to low-pay, unskilled work like the food servers that Pilot Flying J seeks for its truck stops.

At Slate, Daniel Gross responded that there was an obvious reason why. Workers looked at the conditions and wages employers were offering, and said, essentially, “Take this job and shove it!”

[T]he Journal article seems to overlook one important factor. Even in an age of historic underutilization of the labor force, the laws of supply and demand apply. Hiring is a negotiation between employers and employees over the terms at which they’ll agree to come to work — wages, benefits, working conditions, length of commute, relocation requirements. Maybe some of these employers just aren’t offering terms that are good enough.

The article and rebuttal give important context for a New York Times story today on a strike by Mott’s apple juice workers, who are refusing to accept lower wages — particularly given that Mott’s is not suffering from low profits. Workers have been picketing in upstate New York for 90 days now:

The stakes are high for unions. If Mott’s workers lose, it could lead other profitable companies to push for big labor concessions. The union movement and many outsiders view the strike as a high-stakes confrontation between a company that wants to cut its labor costs, even as it is earning record profits, and workers who are determined to resist demands for wage and benefit givebacks. [...]

The company that owns Mott’s, the beverage conglomerate Dr Pepper Snapple Group, counters that the Mott’s workers are overpaid compared with other production workers in the Rochester area, where blue-collar unemployment is high after years of layoffs at employers like Xerox and Kodak.

Of course, some wage cuts, particularly for low-skilled workers, can be blamed on the recession. Via Atrios, The Financial Times reports that call center workers are as cheap to hire in the United States as in India.