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by Vault Consulting Editors | March 03, 2009

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Amid all the job loss and general lack of funds across the board, I was somewhat surprised to read the New Yorker's Financial Page last week, as James Surowiecki pointed out that average hourly wages have actually increased by almost 4 percent over the past year. In fact, he said, wage cuts have been scarce in every recession since the Great Depression. The reason? Employers are worried that if they cut salaries, morale (and productivity) will fall, and their best employees will look for jobs elsewhere (not that they'd be able to find anything these days), while their less productive workers would be more likely to stick around. Surowiecki also noted that worker productivity rose in the last quarter by 3.1%, primarily because companies are running leaner, making them generally more efficient. And, as the theory grows, more productivity equals more pay--which has helped workers avoid pay cuts. But will sort of this economic theorizing hold true in the current recession, which has already proven to be less than history-book predictable?

Not if Watson Wyatt has anything to say about it. According to a study released by the firm last week, many companies are turning to alternative methods of cost cutting, rather than plain old layoffs. (Good! We could use some creative headlines these days.) The survey, which polled 245 large U.S. companies, employing over 4.1 people, showed that companies are going to be freezing salaries, reducing workweeks, eliminating training programs and boosting health care premiums to save money, proving that in this beast of a recession, layoffs just aren't enough. (Cases in point: HP and FedEx have both recently announced pay cuts.)

Surowiecki also claimed that "labor hoarding"--or delaying firing employees for fear of losing talented workers and having to hire replacements when the economy recovers--is a thing of the past. But many experts are saying that this mentality is still alive and kicking, which is what's driving them to seek out alternative cost-cutting measures.

But layoffs are certainly not a thing of the past (for evidence of that, just look at Vault's too-frequently-updated Pink Slipped blog), as companies are trying now to gather all the slack they can, in any way possible. As Tom McMullen, head of the U.S. reward practice at Hay Group put it, "Many organizations are still keeping their options open when it comes to layoffs. If the economy continues to substantially degrade, we expect those hardest hit to make further labor-cost reductions via additional waves of layoffs and salary reductions." I'll allow Surowiecki to have the last word here: "Companies have always wanted to do more with less; nowadays it's a positive obsession."

Watson Wyatt's survey does show, however, that many of the firms laying off staff are extending their severance packages and health care coverage, as well as job search assistance. Take law firm Latham & Watkins, for example, which certainly didn't leave its laid-off employees out in the cold after a rash of cuts last week. And if you do find yourself in the unfortunate position of having been laid off, it seems there's no slide-off in demand for consultants willing to pull together reports on layoffs.

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