UNITYblog EDITORIAL: Wages cuts will lead to higher unemployment

In Gordon Campbell's latest article The risks of cutting wages during this recession (5 May) he quotes Paul Krugman writing in the New York Times: Suppose that workers at the XYZ Corporation accept a pay cut. That lets XYZ management cut prices, making its products more competitive. Sales rise, and more workers can keep their jobs. So you might think that wage cuts raise employment — which they do at the level of the individual employer. But if everyone takes a pay cut, nobody gains a competitive advantage. So there’s no benefit to the economy from lower wages. Meanwhile, the fall in wages can worsen the economy’s problems on other fronts. And again: In particular, falling wages, and hence falling incomes, worsen the problem of excessive debt: your monthly mortgage payments don’t go down with your paycheck. America came into this crisis with household debt as a percentage of income at its highest level since the 1930s. Families are trying to work that debt down by saving more than they have in a decade — but as wages fall, they’re chasing a moving target. And the rising burden of debt will put downward pressure on consumer spending, keeping the economy depressed. The end result more unemployment, not less. What works for one employer, when pursued by all will only lead to the deepening of the recession and worse pain for working class people in the form of mass job losses. Individual employers will act as their logic dictates, which means it will be up to workers and the union movement to collectively fight to maintain and increase wages. As well as pushing for government social spending directed towards modest income people, and intervention in the banking system to reduce the burden of mortgage repayments. What's needed to fight the recession is a redistribution of wealth from the profiting class to workers. The only solution, therefore, for workers is struggle. How successful we can be will depend on the level of nationwide coordination. This is the role of the union movement and the broad left. See also:

• The growing rash of lockouts must be nipped in the bud
• Calling for increased productivity right now is madness