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Sunday, 28 December 2008

Pay cut or job loss

The British Chamber of Commerce has asked the UK government to keep the national minimum wage on hold in 2009 to help businesses to cope with the current economic downturn.

Whether the government keeps the minimum wage on hold or not will not stop wages in the private sector remaining on hold or falling in 2009.

Some businesses, particularly those in the financial sector, have already started to cut wages. In this sector salary cuts of between ten and twenty per cent throughout the company won't be too unusual.

But pay freezes and pay cuts of a smaller magnitude should be expected across all sectors apart from the public sector. Given that those in work receiving the pay cuts will be paying for these public sector pay rises, there may be increased calls for the public sector to also cut back on staff or salaries.

A pay cut may seem like a terrible burden and terribly unfair. Nevertheless, this should be seen as a good thing. In previous years when unions were stronger and labour markets less flexible a pay cut would have been unheard of. As a result some companies were either forced to cut jobs or go out of business.

The ability to cut wages instead of cutting jobs will help to keep businesses going and people in work. These people will be able to retain and grow their skills whilst at work instead of stagnating. Businesses will not have to face the costly burden of redundancy and rehiring and they will have the available staff to take advantage of opportunities that arise. The government will have less unemployment benefits to pay.

A flexible labour market is one of the greatest assets that the UK and US economies have and will be one of the things that will help to pull the economy out of recession and see higher growth over the long term.

It is best to look at this way...what would you rather a twenty per cent pay cut or no job at all?

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posted by Carl Malways at

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