Wage Cut

(noun)

An economy-wide tool to manage wages, most commonly as a response to inflation, and usually below market level, as part of an incomes policy.

Related Terms

Examples of Wage Cut in the following topics:

  • The Pullman Strike

    • The Pullman Strike began in 1894 when nearly 4,000 employees of the Pullman Palace Car Company began a strike in response to wage cuts.
    • The conflict began in the town of Pullman, Illinois, on May 11 when nearly 4,000 employees of the Pullman Palace Car Company began a wildcat strike in response to recent reductions in wages, bringing traffic west of Chicago to a halt.

  • Factories, Working Women, and Wage Labor

    • Wage labor displaced reliance on apprenticeship and family labor.
    • Wages were cut in many factories, and employees who had once labored for an hourly wage now found themselves reduced to piecework, paid for the amount they produced and not for the hours they toiled.
    • In 1821, the young women employed by the Boston Manufacturing Company in Waltham went on strike for two days when their wages were cut.
    • In 1824, workers in Pawtucket went on strike to protest reduced pay rates and longer hours, the latter of which had been achieved by cutting back the amount of time allowed for meals.
    • In the 1830s, female mill operatives in Lowell formed the Lowell Factory Girls Association to organize strike activities in the face of wage cuts and, later, established the Lowell Female Labor Reform Association to protest the twelve-hour workday.

  • The Changing Face of the Workplace

    • Individuals who lose their jobs must either move up— joining a group of "mind workers" (engineers, attorneys, scientists, professors, executives, journalists, consultants)— or settle for low-skill, low-wage service jobs.
    • They are able to compete successfully in the world market and command higher wages.
    • They either lose their jobs through outsourcing or are forced to accept wage cuts.
    • The polarization of jobs into relatively high-skill, high wage jobs and low-skill, low-wage jobs has led to a growing disparity between incomes of the rich and poor.

  • The Beginnings of the Labor Movement

    • After striking for higher wages, in 1806, eight union leaders were brought to trial and accused of conspiring to increase their pay rates.
    • In 1821, the young women employed by the Boston Manufacturing Company in Waltham went on strike for two days when their wages were cut.
    • In 1824, workers in Pawtucket struck to protest reduced pay rates and longer hours (which were a result of employers' cutting back the amount of time allowed for meals).
    • In the 1830s, female mill operatives in Lowell formed the Lowell Factory Girls Association to organize strike activities in the face of wage cuts, and later established the Lowell Female Labor Reform Association to protest the 12-hour workday.
    • American men and women with families to support grudgingly accepted low wages in order to keep their jobs.

  • Ominous Trends in the U.S.

    • While productivity stands to increase dramatically, unemployment is also rising, and jobs are increasingly polarized into the following two categories: high-skill, high-wage jobs, and low-skill, low-wage jobs.
    • Additionally, for the first time, workers are being forced to compete in a global job market, in which jobs tend to be attracted by countries with lower wages.
    • As a result, in industrialized nations like the U.S., those working in production have either lost their jobs or been forced to accept wage cuts.
    • They are able to compete successfully in the world market and command high wages.
    • Increasingly, jobs in countries like the United States are polarized into low-skill, low-wage jobs or the high-skill, high-wage jobs of these "mind workers. " Because of this polarization, there is a growing disparity between the incomes of the rich and poor.

  • Budget Cuts

    • Reagan made cuts to many key anti-poverty, community development and education programs, earning criticism as biased in favor of the rich.
    • Despite the fact that TEFRA was the "largest peacetime tax increase in American history," Reagan is better known for his tax cuts and lower-taxes philosophy.
    • Reagan's policies proposed that economic growth would occur when marginal tax rates were low enough to spur investment, which would then lead to increased economic growth, higher employment and wages.
    • These views were exacerbated by the fact that Reagan's economic regimen included freezing the minimum wage at $3.35 an hour, slashing federal assistance to local governments by 60%, cutting the budget for public housing and Section 8 rent subsidies in half, and eliminating the antipoverty Community Development Block Grant program.
    • Following his less-government intervention views, Reagan cut the budgets of non-military programs including Medicaid, food stamps, federal education programs and the EPA.

  • Changes in Equilibrium for Shifts in Market Supply and Market Demand

    • More hours worked earn higher incomes but necessitate a cut in the amount of other things workers enjoy such as going to movies, hanging out with friends, or sleeping.
    • To see how changes in wages affect the supply of labor, suppose wages rise.
    • In general, at low wage levels the substitution effect dominates the income effect and higher wages cause an increase in the supply of labor.
    • An increase in the demand for labor will increase both the level of employment and the wage rate.
    • While normally hours of labor supplied will increase with the wage rate, the income effect may produce the opposite effect at high wage levels.

  • Conditions of Equilibrium

    • The supply of labor is elastic and increases with the wage rate (upward sloping supply); and
    • The point at which the MRPL equals the prevailing wage rate is the labor market equilibrium.
    • The cost of that action will be the output lost from cutting back on capital, which is the ratio of the marginal product of capital (MPK) to the price of capital (the rental rate, PK).
    • Thus, the cost of cutting back on capital is MPK/PK.
    • The optimal demand for labor is located where the marginal product equals the real wage rate.

  • Efficiency Wage Theory

    • Efficiency wage theory is the idea that firms may permanently hold to a real wage greater than the equilibrium wage.
    • The market-clearing wage is the wage at which supply equals demand; there is no excess supply of labor (unemployment) and no excess demand for labor (labor shortage).
    • This is called efficiency-wage theory.
    • There are several theories of why managers might pay efficiency wages:
    • Instead of market forces causing the wage rate to adjust to the point at which supply equals demand, the wage rate will be higher and supply will exceed demand.

  • Introduction to Labor in America: The Worker's Role

    • About 40 percent of the workers in the cities were low-wage laborers and seamstresses in clothing factories, often living in dismal circumstances.
    • Many Americans left farms and small towns to work in factories, which were organized for mass production and characterized by steep hierarchy, a reliance on relatively unskilled labor, and low wages.
    • Employers, facing mounting challenges from low-wage, foreign competitors, have begun seeking greater flexibility in their employment policies, making more use of temporary and part-time employees and putting less emphasis on pay and benefit plans designed to cultivate long-term relationships with employees.
    • Politicians, once reluctant to buck union power, have passed legislation that cut further into the unions' base.
    • The 1980s and 1990s saw a growing gap in the wages paid to skilled and unskilled workers.