Why Obama Should Cut, Not Freeze, Federal Wages

We need to hire more people for less money
By Kevin Spak,  Newser Staff
Posted Nov 30, 2010 1:56 PM CST
Why Obama Should Cut, Not Freeze, Federal Wages
Cutting federal pay could actually save jobs, if you used the money saved to hire more people.   (Shutterstock)

(Newser) – President Obama introduced a proposal to freeze federal salaries yesterday—or, as Annie Lowrey of Slate calls it, a “wishy-washy plan to hurt some workers without helping others.” Obama’s plan just underscores how much the conversation has shifted from our short-term employment crisis to our long-term deficit one. If Obama really wanted to tackle the employment problem, he wouldn’t freeze salaries—he’d cut them, then use the money to encourage more hiring.

Economists agree that, in recessions, it’s better to have more workers earning less than fewer workers earning more. But to preserve morale, companies generally prefer to lay off workers than cut salaries—it’s an effect called “wage stickiness.” Federal wages have been drastically stickier than private sector ones lately, so Obama could justify cutting them, then passing the money to cash-strapped states, or businesses that hire new workers. Instead we get a freeze that “seems more of a political salve for the deficit hawks” than a real solution. (Read more Barack Obama stories.)

We use cookies. By Clicking "OK" or any content on this site, you agree to allow cookies to be placed. Read more in our privacy policy.
Get the news faster.
Tap to install our app.
X
Install the Newser News app
in two easy steps:
1. Tap in your navigation bar.
2. Tap to Add to Home Screen.

X