Wednesday, March 4, 2009

A sucker bet?

The Wall Street Journal is reporting on an "unusual way South Korea is grappling with the global economic crisis": unions agreeing to reduced wages in exchange for promises of no layoffs. They cite auto parts manufacturer Shinchang Electronics as an example: a 20% pay cut and none of the 810 employees loses their job. 

This is not a new idea. There were some companies in the United States last year where workers voted to forgo an annual raise if it insured nobody was laid off. During Korea's 1997-98 economic crisis it happened a few times. In fact, there were many examples of beleaguered companies in which loyal workers stayed on the job despite not having been paid for three months or more; if they bolted the company would fold and they'd see none of their back wages, but if they stayed and the company somehow managed to get back on its financial feet, they'd get their money. 

And that leads us to wonder: Is this a sucker bet? If you lost your job even in a bad economy, would you be able to get a new one? Let's assume nasty unemployment numbers of 10%, which Korea is not yet at — yet. You'd have a 90% chance of getting a job, or close to it, and only a 10% chance of not, versus the 20% loss you definitely incur if you take this "deal" (and not all 810 employees would be laid off anyway).

And the deal is no guarantee that the company won't eventually have to lay off workers or even fold if the economy gets worse down the road. A one-fifth pay cut for all instead of a one-tenth chance of not being able to find a job could seem more and more like a sucker bet. 

But the 20% buys — for now — something not obtainable in the risk-it-in-the-open-job-market: security and stability. At least for now. And that is in short supply these days. We don't know if we'll wake up tomorrow and find out that five percent of our retirement disappeared has disappeared, or that the value of our home has put us under water. If we're risk-averse, that's some scary sh¡t. (I'm not an economist, so don't blame me if I'm using these terms incorrectly.)

These are tough times. Knock on wood, not for me so far (well, other than the KRW tanking which hurts but is not yet causing damage). But yes for my parents, yes for my siblings, yes for over half the people around me. I think a lot of them would but their income by 20% if there were some guarantee that that's all the worse it would get. [Hat tip to wjk, a nutty person in the same level of the stratosphere as Baduk.]

Sphere: Related Content

2 comments:

  1. BrianWednesday, March 04, 2009 4:02:00 PM

    I dunno, I think you'd have to look at things like demographics and skill levels to really get a feel for what chance you have of getting rehired. For a 50-year-old, he's going to have a hard time finding work regardless of position or field. Lateral movement is difficult and can take too much time, and I don't know how both employee and employer would feel about somebody that age taking an entry-level position. And if you lose your job at a factory, and other factories aren't hiring, you're not getting another job. I don't know about not getting paid for three months, but I'd consider taking a reasonable paycut if it meant keeping my job.

    ReplyDelete
  2. kushiboThursday, March 05, 2009 3:30:00 AM

    I think you're absolutely right, and that makes it reasonable that such a person would be risk-averse. I'm just saying that risk aversion comes with a price, and sometimes that price is heftier than the price of not being risk averse... it's just that it seems less because it's spread out among more people.

    Frankly, I'd have been inclined to take the 20% pay cut.

    And back in 1997 and 1998, when people could not expect to pick up another job, it made sense to keep going to the old job in the hopes that you would eventually get paid.

    ReplyDelete

Share your thoughts, but please be kind and respectful. My mom reads this blog.