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Fearing pay cuts as the new normal

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How many people would dare to badger their employer for a raise in this economy?

My weekend column in the Times looks at the risk that the massive global labor glut poses to the wages and benefits of the still-employed.

Wage levels have long been ‘sticky,’ even in recessions. But with more than seven million U.S. private sector jobs lost since December 2007, and with unemployment in double digits, many workers face the harshest labor market of the post-World War II era. Employers know there are plenty of people willing to work for less than current salary levels in many job positions.

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Companies typically don’t fire someone just to immediately hire a cheaper replacement. But as I note in the column:

What’s troubling is the idea that many companies might have little or no incentive to raise pay or benefits in an economic recovery simply because labor worldwide remains in such a surplus.The nightmare scenario for workers would be a race to the bottom in the wages and benefits offered by employers, as the desperate jobless lower their pay expectations and in turn force those still working to accept less.

That would be the Federal Reserve’s nightmare, too, because it could fuel a deflationary spiral -- exactly what the Fed most wants to avoid.

Read the full column here.

-- Tom Petruno

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