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Americans accept reduction in pay to avoid jobless

Americans agreed to have a reduction in pay in lieu of losing their jobs. A survey of the National Bureau of Economic Research (NBER) that workers accepted the offer than face being laid off.

Reduction in pay is not a problem

According to GoBanking Rates, the early years of 2021 are said to be the Great Resignation where workers voluntarily leave their jobs. Workers won’t agree to have a reduction in pay rather people quit their jobs. In a survey by CNBC, there are 50.5 million people quit their jobs in 2022 surpassing the record of 47.8 million in the year 2021 per U.S Bureau of Labor Statistics data. Reduction in pay is not their concern.

However, a different scenario unfolds. Due to the economic issues facing U.S. labor markets, major corporations, and small businesses slowly reducing workers for long-term benefit. On the other hand, a study found that a reduction in pay was seldom discussed as the solution for the layoff despite the workers agreeing on the reduction in pay in lieu of losing their work.

In a survey done by the National Bureau of Economic Research (NBER) of some of the laid-off workers, Employers are opposed to the idea of a reduction in pay even though employees are willing to accept them. In their paper called “Sticky Wages on Layoff Margin”, 60 of the respondents accepted a reduction in pay of 5% just to keep their jobs. At the same time, 52.3% of the respondents accepted 10% of the reduction in pay and 32.4% accepted a reduction in pay of 25%.

While those results are higher in reality the employers and employees seldom discussed and implemented the reduction in pay when layoff is coming.

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Study about reduction in pay as a solution

In the report published by Nasdaq in a study of Pawel M. Krolikowski a senior research economist at the Federal Reserve Bank of Cleveland, and Steven J. Davis, an economics and international business professor at the University of Chicago Booth School of Business that 3% of the employer would accept the condition in offering a reduction in pay.

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Furthermore, only seven out of 2567 people initiated in talking about the possibility of getting less pay just to keep their job.

In the research of Krolikowski and Davis, they found out that 28% of layoffs can be avoided through joint discussions of the employer and worker in dealing with wage cut agreements and not the reduction in pay. By this, the employer can still get more money and the employee can still keep their job.

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