Ever since the current COVID crisis began, governments were quick to assure the public that there was no need to worry, because the government would be covering everyone’s payroll and handing out cash to business that is struggling as a result of the government-issued lockdown. Governments have also been busy buying corporate bonds and debt too, in order to prop up the stock market and supposedly stave-off a major economic calamity. Well, the catastrophe came alright, but unfortunately – the worst is yet to come.
As it turns out, businesses have been forced lower wages in order to stay afloat during the government-induced economic shutdown – potentially damaging the labor market for a decade.
Politico reports…
Millions of Americans who managed to hold onto their jobs amid the coronavirus pandemic have seen their incomes drop as employers slashed wages and hours to weather what they expected to be a short-term shutdown.
Now, with the virus raging and the recession deepening, those cuts that were meant to be temporary could turn permanent — or even pave the way for further layoffs. That could portend deep damage to the labor market and the economy because so many workers who have kept their jobs have less money to spend than a few months ago.
The numbers haven’t received the same attention as job losses, which are highlighted every week in government data. But at least 4 million U.S. workers have received pay cuts since February even as they continued working the same job, and millions more have seen pay freezes, according to economists from the Federal Reserve and University of Chicago who put out a study analyzing data from the payroll processing company ADP.
Other estimates put it higher: Roughly 7 million workers have likely received a dock in pay, according to Mark Zandi, the chief economist at Moody’s Analytics. Combined with those who have been forced to log fewer hours, the number climbs to 20 million people — or 1 in 8 workers — who have seen their paychecks shrink over the past few months even as they continued to work, underscoring how much harm shutdowns have caused beyond layoffs alone.
“We have an income crisis that is even larger than a jobless crisis,” Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth, wrote on Twitter recently.
“There’s so much that falls under that,” Sahm, who previously worked at the Federal Reserve, said in an interview, referring to the “income crisis” label. “There’s these massive job losses. There’s hours being cut, overtime being lost. And then on top of that — and this is something we just really haven’t seen at all — is a large fraction of workers taking cuts in their wages.”
Continue this story at Politico
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