About 800,000 Defense Department civilians could face 22 unpaid leave days, spread out over as many weeks, amounting to a 20 percent pay cut over that period.
Because work requirements will not fall, [SecDef] Panetta said in a letter to the Senate, ‘the workload on each employee . . . will be increased beyond what can reasonably be achieved.’
As a macroeconomist, my first question is simple: ???
Let me spell that out a bit: If the sequester kicks in, why are government executives deciding to give their workers unpaid vacations? Wouldn’t the sound response–especially in a weak job market, where job options are allegedly rare–be to cut back wages and tell everyone to show up ready to work on Monday?
Note that your response to this question–if fact-based and not an ecstasy of mood affiliation–is a double-edged sword.
If you say, “We can’t cut wages, high quality government workers will quit to take private jobs,” then you’ve just agreed that the labor market is tight for a sizable portion of the economy.
If you say, “Workers will have low morale, and they won’t work as hard; productivity of the workers will fall,” then the obvious response is to fire the grumpy workers and hire new ones. I’m repeatedly told by left and right that there’s a reserve army of the unemployed out there, that the official unemployment rate understates the true desperation of workers.
Sounds like a hiring opportunity to me.
Let’s return to the morale question. I’m a fan of Truman Bewley’s work of economic anthropology, Why Wages Don’t Fall During a Recession
, and he notes that private sector executives really do believe that worker productivity will fall if firms cut wages. But when it comes to wage cuts versus furloughs, the real question is: Which one hurts productivity more?
Can furloughs really be the better option? Are unpaid vacations better for productivity than lower-paid workers? I’m glad to hear of evidence to the contrary but count me among the skeptical.
Perhaps wage cuts for federal workers aren’t legal: Perhaps Congress would have to pass a law to permit wage cuts instead of furloughs. In that case, I’d expect the Senate or the President to block any attempt to convert furloughs to wage cuts. Furloughs are a great way to hold the recipients of government services hostage (e.g., 90 minute TSA delays) and hence a great way to end the sequester. But if legal barriers aren’t an issue to pure and simple wage cuts, that should be the first line of response to the sequester.
Coda: Same story applies to government contracts: Now’s a great time to get a Joint Strike Fighter for 20% less! And those who think that deal isn’t on the table should wonder whether that means that there’s less slack in the economy than they thought….
P.S. I didn’t say “across the board wage cuts.” No reason not to be judicious….