An unusual financial-crisis-era tactic designed to avoid layoffs is reemerging as coronavirus freezes the economy. Here’s why it could make a recovery take a lot longer.
- Salary cuts — last seen during the global financial crisis in 2008 — are back as companies try to cut costs as the coronavirus pandemic drives an economic slowdown.
- While the move keeps workers employed and could help companies survive the downturn, it could also damage consumer confidence and make a recovery take longer, economists say.
- “The impact down the line is that there’s going to be less spending,” Bank of America economist Joseph Song told Business Insider. “That’s where you could see a shortfall, and that could lead to a weaker recovery.”
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Companies are resorting to salary cuts for employees to lower costs as the coronavirus pandemic drives a sudden economic slowdown. While it may seem like a prudent short-term move, it could weigh on the economic recovery further down the road, economists say.
Sweeping cuts to salaried worker pay was last seen more than a decade ago during the global financial crisis that started in 2008. The idea is that instead of laying all workers off, companies can save on labor costs but keep things rolling by slashing pay, shortening hours, or furloughing workers.
The practice has reemerged as coronavirus …continued .
[Source: Business Insider]