Sam Redman's Musings

Random thoughts on a variety of subjects

Redefining corporate wages downward

by Sam Redman

A recent NYtimes talked about how there are a number of people reporting that they have taken jobs for which they were “overqualified” and now work for lower wages than they made prior to losing their previous positions. You can read that article by clicking here.

What is really happening is an ongoing trend by corporations to systematically downgrade their skilled (and management) pay scales and then get new lower paid workers who are fully trained and experienced to perform jobs which formerly had to be compensated with premium salaries. The standard pitch line which the employer explains is that “we know that you are really overqualified” for this position, but “we would love to hire you if you could see yourself working at a salary far below what you made at your previous job.”

It actually makes a lot of sense from a business viewpoint… wages are like raw materials and components. Companies seek competitive bids for those items and if the materials “meet spec,” then the purchase order goes out to the supplier who had offered the lowest price with an on-time delivery schedule. Employees are being regarded very much the same as commodities in the marketplace and it is a buyer’s market.

Many companies endured layoffs simply because they lost sales from being unable to compete, often with foreign suppliers. Some of those failing operations, after such cutbacks, began to reevaluate their companies and realized (by “crunching the numbers”) that if they could lower costs of goods throughout the business by reducing employment costs, first with on-the-line labor, but also every support person from factory management and quality control technicians all the way into the scheduling and accounting offices (and even in the executive ranks), those new lower numbers could enable them to compete again.

Therefore positions have been redefined (and renamed) on a large scale and the advertisements have gone out again for such “newly defined” positions, but with, in many cases, drastically lowered compensation. One business I knew about was able to redefine a particular accounting position from $120,000 annually to only $40,000 (and that sort of drastic savings is not atypical). The executive at that company commented that he was amazed at the number of qualified applicants willing to take such a new low salary in spite of income records which were similar to what they had been paying for the same job. He said that they have virtually entirely restaffed their business with similar savings. How do those people survive? It often means selling homes and settling for a smaller house and both spouses working (again at lower wages). Someone told me that health care or the government are the really the current places to be, because they are not experiencing similar salary cuts. But, as more and more mergers and consolidations occur and the corporate budgetary knives come out… the health care industry may see a similar phenomenon. Government salaries may remain the only safe haven… no one cuts those wages.

It’s a frightening trend and it explains some of the housing foreclosure crisis. Those who get “laid off” from high paying positions find that when their companies hire back, the old job is gone and only lower pay situations are being offered. And it is true that there has been a very strange trend in this country which has dictated that management and engineering salaries would get “merit” increases every year resulting in workers, after five years or so, making far greater income that a replacement employee would require. Businesses have learned that cleaning house and “redefining” jobs can get you the same quality and expertise, but at bargain prices (and the ablility to compete again in the marketplace with your products).

I recently spoke to a wealthy manufacturing executive from a country we would call “second or third world,” who expressed quite a surprise at wages paid to professional (degreed) workers in the United States. Their corporate way was to pay only a few at the top handsomely (like himself), but to staff everywhere else in the company at very meager salaries, in many cases with their college trained and skilled workers making only small percentages higher than the laborers.

The “recession” scare gives companies the opportunity and license to do these huge layoffs and restructured rehirings without criticism. It appears that we are seeing obvious signs of the repositioning of the class structure and purchase power of what was an always rising professional and management middle class. “Just getting by” is the new middle class.

Better apply now for that government job or a health care position and get settled in where no one has to worry about the bottom line.

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This entry was posted on March 29, 2010 by and tagged , , .