In addition to layoffs, companies are increasingly trimming wages, a tactic economic historians said hasn't been wielded broadly since the Great Depression.
Heavy equipment maker Caterpillar Inc. announced in late December it would cut executive pay by half, and many salaried employees would see cuts of as much as 15%. Hutchinson Technology, a Hutchinson, Minn., maker of disk drive components, cut salaries 5% for employees who remained after a round of layoffs concluded this week. In Galveston, Texas, police and firefighters unions agreed to a 3% pay cut as the city grapples with the recession and the aftermath of Hurricane Ike.
Saks Inc. plans to eliminate 1,100 jobs, or 9% of its work force, and slash its capital expenditures. In addition, the luxury retailer will eliminate 2009 merit-based wage increases. Saks will also suspend matching contributions for 401(k) retirement accounts for at least a year and suspend benefit accruals for the few remaining employees in its pension plan.
And consider these points from the latest Beige Book:
(Boston) Most contacted firms anticipate cutting employment and capital spending in 2009. Those reporting on intended pay increases for 2009 say they will be below those in recent years. Companies typically are planning raises that are 0.5 percentage point to 1.5 percentage points lower than in 2008, but some are enacting partial or across-the-board pay freezes.
(Chicago) Wage pressures were limited. However, several contacts noted that firms were choosing to freeze or cut pay instead of laying off workers to lower labor costs. In addition, contacts also reported that firms were reducing or eliminating elements of non-wage compensation.
(San Francisco) Contacts reported little or no upward pressure on wages. With unemployment rising in most areas, companies have seen an increase in the quantity and quality of applicants for open positions, which limits upward wage pressures. Some contacts also reported that they are implementing or considering wage freezes, which employees appear increasingly willing to accept. Wage gains continued to slow for worker groups that previously had seen rapid growth, notably those skilled in the use of advanced technologies.
This is an interesting development. One of my pet theories (totally undocumented) is that over the last 30+ years we've seen companies pull back on hiring until literally the last possible moment when they need employees. That means that each new employee is that much more important to the company. That makes firing workers more difficult because they are that much more important to the overall scheme of the company.
Again, this is a pet theory based on nothing more than intuition. However, it would explain why some companies are asking employees to take wage cuts and salary freezes.