Pay cuts for millions of U.S. workers worsen the pain of pandemic

Denise Iezzi, an accounting assistant, has had every Friday off since the pandemic escalated in March. This isn't by choice. Her employer cut her hours and pay. It's an involuntary sacrifice that more and more workers are being asked to make.

At least 4 million private-sector workers have had their pay cut during the pandemic, according to data provided to The Washington Post by economists who worked on a labor market analysis for the University of Chicago's Becker Friedman Institute.

Workers are twice as likely to get a pay cut now than they were during the Great Recession, according to the group's analysis of data from the payroll processor ADP. Salary cuts are spreading most rapidly in white-collar industries, which suggests a deep recession and slow recovery since white-collar workers are usually the last to feel financial pain.

Companies have also trimmed employee hours, leaving many hourly wage workers with leaner paychecks as well. More than 6 million workers have been forced to work part time during the pandemic even though they want full-time work, Labor Department data show.

"I have Fridays off but I would rather have the money," said Iezzi, who has seen her weekly paycheck at a New Jersey air conditioning business fall from $720 to $576.

Widespread pay cuts are highly unusual. In downturns, firms typically lay off workers rather than dealing with the administrative challenges and morale effects of slashing pay across the board. But as the United States faces the worst economic crisis since the Depression era, some business leaders have tried to save jobs by cutting pay between 5 and 50 percent. The median wage reduction was 10 percent, economists who worked on the Becker Friedman Institute study found.

Workers and economists are concerned that after the country was finally seeing some sizable wage gains last year, a major backslide could be underway.

"It took us so long to see even the slightest acceleration in wage growth. Watching that get undermined is devastating," said Martha Gimbel, a labor market expert and manager of economic research at Schmidt Futures.

Business leaders are characterizing the pay cuts as "shared sacrifice," as Tesla's head of human resources put it, during a global crisis. Executives see it as a win-win: It's better for workers if they take a pay cut than get laid off, and it's better for companies if they can keep highly trained workers on staff who will be ready to go when business rebounds. But analysts fear that these pay cuts could quickly turn into layoffs if the recovery stalls.

Pay and hours have been cut in nearly every sector, according to payroll processor Gusto, but white-collar industries such as finance, tech and law have seen things turn south most rapidly. Gusto works with 100,000 small businesses across the country.

All of this uncertainty about whether workers will even have a job this fall - or have to take a pay cut - is making Americans eager to save their money instead of spend it. While that can be a wise move for family finances, it is holding back the economic recovery: About 70 percent of the U.S. economy depends on consumer pending.

Steve Biegenzahn has reduced every expense he can after his pay was cut in half. Biegenzahn, 70, left his family and new home in Idaho in March to take a law job back in California. But just as he reached Torrance, the state began to lock down.

Within weeks, the law firm Biegenzahn had traveled 1,200 miles to work for slashed his hours and pay. He suddenly found himself living on a fraction of the modest salary he'd moved for - not nearly enough to maintain households in both Idaho and California.

If it weren't for friends who let him stay in a house they were trying to sell, Biegenzahn said, he'd be in serious trouble.

"I'd be eating into savings every week," he said.

Both small and large companies have been cutting pay. In data shared with The Post, Gusto found almost a third of small businesses had cut some workers' pay or hours by at least 10 percent in May. That includes 9.5 percent that reduced pay for at least one employee, and 22 percent that cut hours.

The ever-growing list of large companies that have slashed pay includes General Motors, BuzzFeed News, Occidental Petroleum, HCA Healthcare, Mass General Brigham, Tesla, Sotheby's, state of Ohio employees, and Major League Baseball.

"The pay cuts seem to be geared toward higher-paid workers in positions that are hard to rehire," said Nick Bunker, research director at Indeed Hiring Lab. "But it's also a sign that if there is slippage in the overall economy, we might see layoffs extend to higher-wage positions as well."

Tesla is a telling example. In April, the company announced a 30 percent salary cut for executives, a 20 percent cut for directors and a 10 percent wage reduction for all other employees. The slimmer paychecks were in place from mid-April to the end of June.

Whether pay cuts like these become permanent could determine the speed of the recovery. Tesla did not respond to a request for comment on its plans for July.

"Businesses typically fire you before they cut your pay, so this is really atypical," said Mark Zandi, chief economist at Moody's Analytics. Zandi works with ADP on its analysis of jobs data. "There's a real risk we would see actual nominal wage declines, which would be unprecedented."

Iezzi, 62, is hoping she will be back at full-time hours - and full-time pay - later this summer. In March, the air conditioning company had her at three days a week. She's back up to four, but it's not enough.

"You go to work every day and just wonder when will this end. Surviving on three or four days a week just doesn't cut it," she said.

Employees are struggling to ask for raises when so many people are out of work, giving employers the upper hand in negotiations. The nation's unemployment rate skyrocketed from 3.5 percent in February to nearly 15 percent in April. Economists expect it to remain around 10 percent through the end of the year.

Workers who have their hours cut are supposed to be able to get unemployment aid, while workers still doing 40 (or more) hours for less pay are not eligible.

Iezzi applied for unemployment and received one payment in April. She hasn't received any money since, despite numerous calls and emails to New Jersey's unemployment office. To pay her bills, she has been driving for Lyft.

"It's going on 12 weeks now and I've received one unemployment payment," Iezzi said. Numerous Lyft riders have told her that they, too, have had trouble accessing unemployment aid.

Nearly a third of American workers have taken a direct hit from the coronavirus-related recession, either in losing a job, having hours cut or having their salary slashed. They may hesitate to spend in the coming months unless government aid plugs the hole in their pocketbooks, economists say.

The June University of Michigan Survey of consumers showed that most (56 percent) expected the economy to be better a year from now, but few expect the return of "good times." Instead, "consumers were just as definite in their opinions that bad times financially and high unemployment would still dominate the economy well into 2021."

Sharmon Craddock, 42, doesn't even know how long her shift will be when she walks into the Liberty Township campus of Cincinnati Children's Hospital to register patients each workday.

Since the pandemic began, full workdays are rare. And every time she gets sent home early for lack of work, she falls further behind on her car payment, rent, and the gas and electricity bills. The utilities are due to be shut off any day now, she said.

Her hours are down by about half, though coronavirus hazard pay has helped keep her paychecks from cratering. She is still waiting for her stimulus payment and her 2019 tax refund, and time is running out. As Ohio reopens and accounting departments begin to crack down on overdue balances, forbearance on bills is getting harder to come by.

"I just need a roof over my head, a car to get to work and food on my table so my kids can eat," Craddock said.

As in Craddock's case, some employers are avoiding layoffs. They don't want to place undue hardship on their employees. And, after years of fighting to hire workers in a tight labor market, they don't want to let them go when there's still a chance of a speedy economic recovery.

Christopher Hoyt co-founded the Pioneer Collective, a Seattle-area coworking outfit, in 2014. The company was on track for record revenue when the virus hit.

Hoyt quickly reduced his own salary to zero and cut his workers' hours by about half. But thanks to a Paycheck Protection Program loan and new pandemic-related business, he has kept everyone employed, even if they're still not back to full time.

"One of our goals was to not lay anybody off and make sure everybody kept enough hours to stay on our health insurance," Hoyt said.

Nobody wanted their hours reduced, but the alternative was keeping everyone at full hours and cutting their pay, which seemed unfair, Hoyt said. Still, there's something symbolic about a pay reduction, he said. "It seems like more of a demotion or something related to performance."

Just as importantly, Hoyt wants to keep his current team members on the payroll so they're ready to hit the ground running when things open up. They're already accepting some clients, but Hoyt doesn't expect normal levels of business until 2021.