From Telework to Flexible Wages?

Lately I’ve been stunned by reports of nominal wage cuts.  They aren’t just in the news; several professionals that I personally know have received such cuts.  Employers routinely cut total pay during recessions by slashing bonuses and hours.  Even in good times, many employers cut real wages by freezing pay despite inflation.  Yet outright reductions of nominal base pay – hourly wages for hourly workers, base salary for salaried workers – have been exceeding rare for as long as we’ve had data.  Economists have debated whether downward nominal wage cuts are bad, but virtually all economists agree that downward nominal wage cuts are rare.

What on Earth is going on in today’s labor market?

The simplest explanation is that the current recession is terrible.  Quite right; maybe it’s twice as terrible as the Great Recession.  But last time around, I heard zero first-hand reports of nominal wage cuts, and near-zero such stories in the news.  I can understand a doubling of incidents, but not this.

Another tempting tale: Workers today realize that they must take pay cuts or lose their jobs.  Alas, this trade-off is on the table during every recession.  And in every prior recession, falls in nominal base pay have stayed very rare.  What then is really afoot?

Let’s begin with a primordial fact: The best explanation for nominal wage rigidity is psychological. When employers cut workers’ nominal base pay, workers feel robbed and resentful.   This hurts morale, which hurts productivity, which hurts profits.  In contrast, when employers start doing layoffs, the fearful remaining workers respond by working harder.   Logically, of course, there’s no reason for workers to feel more robbed and resentful about a 1% nominal cut in the face of 0% inflation than a 0% raise in the face of 1% inflation.  Human beings, however, are not so logical.

Why then are nominal pay cuts suddenly on the table?  You could say, “Workers have suddenly become more logical,” but as far as I can tell, they’re crazier than ever.  But psychologically speaking, there is one radical and unprecedented change in the emotional experience of labor in the time of coronavirus: the explosion of telework.  Until recently, only 3% of workers teleworked, and a large majority of these teleworkers probably dropped by the office at least every week or two.  Now the telework share has plausibly multiplied tenfold, and our former offices are all but abandoned.

Loneliness is only the most obvious psychological effect.  Teleworkers have also lost most of their opportunities to complain and hear complaints, to feel bitterness and sow bitterness, to feel aggrieved and seek revenge.  As a result, I speculate, the effect of nominal wage cuts on morale has never been lower.

When an employer cuts the pay of a face-to-face work team, the workers constantly remind each other of the perceived affront.  They work down the hall from the executive they hold responsible for the pay cuts.  They see which fellow workers are standing up for themselves, and who’s kowtowing to The Man.  That’s how the classic mechanism – wage cuts –> bad morale –> low productivity –> reduced profits – worked.  Now, in contrast, teleworkers are stuck at home with their families.  They’re juggling childcare, housework, and safety in a chaotic situation.  As a result, they have neither the energy nor the forum to kvetch – verbally or otherwise – with coworkers.  Today’s teleworkers talk to their peers to get the job done, then get back to business.  Supervisors who cut your pay now feel more like a tiresome video than a human villain, which quells the urge to settle the score.

Think about it this way: If your firm cut pay three months ago, what would have happened?  You would have arrived at work and started griping to your friends.  A few would philosophically adjust to the new normal, but a coterie of complainers would have whined, muttered, grumped, and sputtered for months.  In so whining, muttering, grumping, and sputtering, they would have disrupted not only their own work, but teamwork itself.

If your firm cut pay today, in contrast, you’d probably just read the email, groan, and resume your duties.  You might lament your fate to your partner or close friend.  Yet now that you’re teleworking, you plausibly won’t even mention the issue to a single coworker.  You almost certainly won’t lunch with coworkers to denounce the firm’s callousness and greed.  Stripped of this social feedback loop, neither morale nor productivity will fall much.  At long last, pay cuts finally do exactly what firms desire: mitigate losses by cutting costs.

On top of all this, executives and managers almost surely feel much less guilty about pay cuts than they ordinarily would.  Out of sight, out of conscience.

How can we test my story?  Most obviously, industries that switch to telework will be much more likely to impose nominal cuts.  To repeat, that means lower nominal base pay for salaried employees, and lower nominal wages for hourly employees.  In industries where some categories of workers switch to telework and others don’t, I also predict that the switching categories will be more likely to experience cuts.  (There, however, horizontal equity norms may get in the way.  If 95% of a firm’s employees telework, management might cheaply avoid outrage by also cutting pay for the 5% who work on-site).

Note: You don’t have to think that wage cuts are socially desirable to buy my story.  For a tenured GMU professor such as myself, nominal wage cuts are all pain, no gain.  That said, thirteen years after the Great Recession started, I remain convinced that nominal wage cuts are a greatly underrated way to alleviate the grave evil of unemployment.  Nominal wage cuts don’t merely save jobs within the firm; they also save jobs throughout the economy.  Keynes opposed wage cuts, but good Keynesians smile upon them.

Think of it this way: Suppose you have $1M total to pay workers.  Which is better for Aggregate Demand: Retaining your whole workforce and cutting pay 10% – or keeping wages constant and laying off 10% of your employees?  The latter route, though timeworn, reduces workers’ spending because the marginal propensity to consume falls with income – and reduces firm’s profitability in the process.

Does this make me optimistic about the economy?  Hardly.  We’re already in the midst of a second Great Depression, and even perfect nominal wage flexibility won’t restore normalcy anytime soon.  Still, when word of nominal wage cuts reaches my ears, I feel a glimmer of hope.  Unemployment will skyrocket.  Without nominal pay cuts, however, unemployment would have been worst yet.  Unemployment will take years to subside.  Without nominal pay cuts, however, unemployment would have lingered longer still.  As I wrote a decade ago:

Is labor market rigidity a market failure?  I’m afraid so.  But strangely enough, this market failure is largely caused by anti-market bias!  The main reason workers hate wage cuts is that they imagine that wage-cutting employers are satanically “unfair.”  If workers saw wage cuts for what they are – a full-employment mechanism – they’d sing a different tune.  While they wouldn’t be happy to see their wages cut, they’d grudgingly accept that a little wage variability is a fair price to pay for near-total employment security.  Once this economically enlightened perspective took hold, employers would eagerly cater to it – and the market failure would largely go away.

According to Peter Pan, “Everytime a child says ‘I don’t believe in fairies,’ there’s a little fairy somewhere that falls down dead.”  As far as I know, he’s wrong about fairies.  But if Peter had warned, “Everytime a person says, ‘I don’t believe in markets,’ there’s a worker somewhere that loses his job,” he wouldn’t have been far from the truth.  Scoff if you must!  People can and do cause market failure by believing in it.

Teleworkers still don’t believe in markets, but at least they’re less likely to tell each other, “I don’t believe in markets” – or act on their resentment.  Thank goodness for small miracles.

P.S. Disclaimer: The best predictor of future data is past data- and we should never say, “This time it’s different” lightly.  So I wouldn’t be shocked if aggregate data ultimately revealed continued severe nominal wage rigidity despite my current impressions of drastic change.  If so, consider this piece an imaginative yet regrettable attempt to explain “facts” that barely happened…

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Freedom of Association

Why shouldn’t you be forced to marry and have children against your will? Why shouldn’t you be forced to join and support a religious organization? Why shouldn’t you be forced into friendships to spend your leisure time with people you don’t like? Why shouldn’t you be forced to do unimportant and unproductive work for an abusive boss? Why shouldn’t you be forced to comply with the demands of politicians who steal your money and use it in unethical and counterproductive ways?

The answer is simple: nobody has a higher claim on your life than you do.

Argument against freedom of association constitutes a rejection of ethics. Politics is what you are left with after you reject ethics. It is the systematic violation of consent. It is an endless fight over oppressive control and stolen resources in which association must be either forced or prohibited.

When civilized people disagree, they don’t claim the moral high ground while violating consent to enforce their unprincipled demands on others. They respect the right of individuals to self-select into associations that seem most likely to result in their safety and happiness. If the internalized cost/benefit ratio is not satisfactory, they are free to disassociate.

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How Freedom Can Survive This Pandemic – With Your Help

There are not many possible outcomes in which humans become freer after the COVID-19 pandemic. Already Western governments (see: United States) are taking unprecedented powers and violating civil liberties on a mass scale, despite farcical mismanagement of the crisis. Countries already well along the authoritarian road are openly embracing dictatorship (see: Hungary) or violent suppression (see: the Philippines, China).

The stay-at-home orders and lockdowns have probably made you feel powerless to help fight either this pandemic or the emerging fascistic orders. But there is plenty we can do. This list is just a start:

Make yourself more resilient

Are you isolated? Very well. Become a stronger individual. Do things which will reduce your dependence on the people who would run your life.

  • Wear masks in public (and practice physical distancing): Protect other people from transmission of the virus by wearing a mask. You may be a carrier without having any symptoms. Stay at least 6 ft. away from others, and limit unnecessary travel. All the basics: don’t make things worse for yourself or others.
  • Stay fit: Eat well and exercise and monitor your own health.
  • Prepare for shortages: It’s a bit late in the game to “stock up”, but supplies of some things are still plentiful relative to supplies in a few weeks. Don’t hoard, but at least make sure you have enough for yourself and your family to avoid the bread lines.
  • Keep some cash: Having cash (rather than debt) right now will be a source of optionality. The more cash you have, the longer you can resist the dole.
  • Get good at doing things yourself: Whether you’re making a mask or raising chickens or building a home gym, you’re going to have to do a lot of things yourself, or else do without. You’ll have to fix a lot of things.
  • Learn self-defense, and get the tools for it: This virus will be making traditional police forces both weaker (due to sickness) and more dangerous (due to new levels of power and nosiness). You would be well advised to learn gun safety, get a gun, and maybe acquire some other self-defense skills (such as a martial art).

Strengthen voluntary communities

Even strong individuals will look outward for help. We can let them turn to dictators and/or bureaucrats, or we can make voluntary associations and the voluntary institutions of civil society strong enough to meet the demand.

  • Help your neighbors: Your neighbors will be suffering too, whether from loneliness or from actual need. Donate to your food bank, send food or supplies to your local medical workers, volunteer if you can do so safely, and bring groceries for your older neighbors.
  • Support small businesses: The more independent entrepreneurs survive this crisis, the fewer the people forced toward welfare-dependency, government work, or employment for the crony corporations.
  • Create value: Entrepreneurs who can build new technologies and businesses to help during this pandemic will be doing a great deal for freedom, even if they don’t speak about politics at all. Growth and innovation are their own arguments for liberty, and private initiative to solve social problems will be a clear counter-example to the corruption and incompetence of bureaucracy.
  • Make churches and community groups work well remotely: You must find a way to transition traditional mass gatherings into forms of peer to peer connections. Livestreams won’t be enough. People need interaction. Consider group video calls, group chats, email threads, etc. for the communities you care about, and keep interaction going.

Organize and foster dissenting voices

Shutdowns and lockdowns create perfect opportunities for petty tyrants to rule isolated individuals – unless we find each other online. We will have to organize regardless of the distance:

  • Connect with fellow freedom-lovers: Reach out to your friends, colleagues, and acquaintances who are likely to share a concern for political liberty. Find people you can trust and people who will be willing to stand alongside you in protest and even disobedience. There may be differing levels of interest or commitment as well as different ideological orientations – that’s fine. Work with people where they are, and build a coalition of people who care.
  • Share information: Watch and share important news about the pandemic and government overreach. Curate from many sources. Take the pandemic seriously and avoid fake news.
  • Speak out: I’m generally cynical on the value of political speech, but you never know how you might shift what someone else is willing to accept from their government. Say something. Share why bailouts are destructive of economic welfare, criticize police harassment of solo beach walkers, point out the illegality of business shutdown by state fiat, etc. Share how deregulation of a choked medical industry is helping, and how free people working together have often bested government solutions.

Prepare for active dissent and disobedience

More steps toward tyranny have happened in the past few weeks than have happened in a year, or so it seems. As economies quickly degrade and social unrest rises, governments will claim more power which they may use against dissidents in the name of safety. And if lockdowns on travel, free assembly, and free enterprise continue, civil disobedience will be both just and necessary (if more dangerous). So it’s not a bad idea to be prepared for further crackdowns by paranoid governments, as well as the risk of being libertarian in that eventuality:

  • Do the anti-surveillance basics: The surveillance state will probably take this opportunity to reveal itself fully. Make things harder for it, at least. Encrypt your chats using an app like Signal, encrypt your emails using PGP, and remember that your devices’ microphones and cameras might be watching/listening to you (block them if you can).
  • Reduce dependence on anti-privacy platforms: Platforms like Google, however well-intentioned, seem to have no qualms about making your data (location, etc) available to governments. Facebook certainly won’t mind turning over your communications if doing so can be justified by “the emergency.”
  • Reduce dependence on censorship-oriented platforms: Twitter recently announced its intention to remove tweets contradicting “expert” information about COVID-19, at a time when “experts” were still claiming that masks were ineffective (they now acknowledge masks’ usefulness). These platforms may continue to make terrible editorial/censorial decisions as economies .
  • Learn your legal rights: It has become a meme, but you should know how to challenge police officers for violation of the 4th amendment (and other rights). Consider the possibility that you may be arrested either for something as silly as going outside or for deliberate disobedience of business shut-down orders.

This pandemic will pass. The authoritarian gains made now will remain for a long time. But if we act early and often, we can thwart a lot of it, give the state some black eyes and PR nightmares, and maybe even eke out some victories for freedom.

Originally published at JamesWalpole.com.

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Government More Deadly Virus

Do you know what I’d rather not think about? The coronavirus panic. Do you know what it seems no one, including me, is thinking about? Anything other than the coronapocalypse.

People think about the things that catch their attention. That’s normal. The changes forced on society over the past couple of weeks are huge. It’s no wonder people can’t stop thinking about this.

It’s wise to take things seriously, but not to let them cause panic.

Here are some other things that might be important to learn from this:

  • If you’re sick, stay home!
  • If you are waiting to see if government can save you, you’re barking up the wrong flag pole. You have the most influence over your own life and health. Use it.
  • Don’t stay submerged in coronavirus hysteria. You can leave the cell phone in your pocket and take a walk. Let the sunlight and fresh air work their healthy magic.
  • The time to stockpile supplies is before a crisis occurs. Otherwise you help cause shortages and increase the possibility of violence. Maybe less so here than in urban areas, but it’s a danger everywhere.
  • There’s no such thing as “price gouging.” Higher prices during greater demand make sure the stores don’t run out. Government’s unwise intervention, imposing socialist economic policies, guarantees empty shelves, whether it happens in America or Venezuela. I’d rather pay a higher price for something I need than to not be able to get it at any price because stores weren’t allowed to charge higher prices during increased demand.
  • When government bungles the response — often by responding at all — and then tries to cover up the bungling with heavy-handed police state tactics as is happening now, things get worse than they otherwise would.

This is also an opportunity for personal growth.

There are people in high-risk groups who probably shouldn’t be going into public to shop. If you aren’t in this group, why not ask them what they need, and go get it for them? Compete with your friends and see who can help the most people. Make it a sport.

No one knows what the coming weeks will bring. I believe the virus itself is less dangerous than the social effects of the panic and the anti-social power-grabs by various governments.

You will suffer in the coming months. It’s not going to be the fault of any biological virus, but of an institutional one. Political government is the deadly virus most in need of extinction.

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How Isaac Newton Turned Isolation From the Great Plague Into a “Year of Wonders”

College students around the world left campus this month, unsure when they would return and what daily life would look like until then. Forced to leave their friends and classmates behind and return to their childhood bedrooms, young people, who on average are less impacted by COVID-19’s dire health effects, may understandably feel angry and resentful. Free and independent, with their futures full of possibility, these students are now home and isolated. It can seem wholly unfair and depressing. But the story of another college student in a similar predicament might provide some hope and inspiration.

Isaac Newton’s Quarantine Experience

In 1665, “social distancing” orders emptied campuses throughout England, as the bubonic plague raged, killing 100,000 people (roughly one-quarter of London’s population), in just 18 months. A 24-year-old student from Trinity College, Cambridge was among those forced to leave campus and return indefinitely to his childhood home.

His name was Isaac Newton and his time at home during the epidemic would be called his “year of wonders.”

Away from university life, and unbounded by curriculum constraints and professor’s whims, Newton dove into discovery. According to The Washington Post: “Without his professors to guide him, Newton apparently thrived.” At home, he built bookshelves and created a small office for himself, filling a blank notebook with his ideas and calculations. Absent the distractions of typical daily life, Newton’s creativity flourished. During this time away he discovered differential and integral calculus, formulated a theory of universal gravitation, and explored optics, experimenting with prisms and investigating light.

Newton biographer James Gleick writes: “The plague year was his transfiguration. Solitary and almost incommunicado, he became the world’s paramount mathematician.” (p. 34). Newton himself would say about this forced time away from university life: ‘For in those days I was in the prime of my age for invention & minded Mathematics & Philosophy more than at any time since.’”

The Great Plague eventually ended and Newton returned to Trinity College to complete his studies, becoming a fellow and ultimately a professor. The discoveries he made during his time away from campus, though, would form the foundation of his historic career for years to come and become some of the greatest scientific breakthroughs.

This is a trying time for all of us, as our lives are upended and our routines are disrupted due to the pandemic. There is much to despair about. But this could also be a time for reflection and discovery. The sudden change to the rhythm of our days, and the associated isolation, could unleash our imaginations and inventiveness in ways that might have been impossible under ordinary circumstances.

Rather than being a nadir, this “social distancing” experience could be the peak of your creativity and production. This could be the time when you formulate your greatest ideas and do your best work. This could be your year of wonders.

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Don’t Netflix Your Way Through Crises

One thing I find especially bothersome about the response to the COVID-2019 pandemic is the common meme telling average people to “just stay home and watch Netflix.”

What does it say about us that this is a common idea of how to respond to a major crisis? The Netflix prescription is a passive, helpless, hopeless way to experience a trying time which may last for months. It’s a meaning-starved narcotic for people who have the time and luxury to watch it. And it’s not much of a palliative for people who are losing their jobs or friends and loved ones.

Sure – let’s watch some movies if that’s a normal part of life for us. But there are about a thousand better things we can be doing.

We can be supporting our friends and families. We can be catching up with old friends online and in video calls, delivering groceries for at-risk folks, and sharing important public health advisories with our neighbors.

We can be developing ourselves and improving our own lives. We can be learning new skills and languages, reading useful books, exercising outside (away from people), painting, teaching, or selling.

We can be preparing for the shockwaves and the aftermath of this crisis. We can be planting gardens and raising chickens and buying investments and fixing things around the house and stocking up and learning first aid.

We can be supporting the response to the pandemic. We can be donating, raising funds for personal protective equipment for healthcare workers, or contributing time to online crowdsourced projects to make masks and other gear.

And we can do all of these things – as we would with Netflix – from home. There aren’t enough good shows on any streaming platforms to make this time worthwhile only for consumption. Find something useful and meaningful now: you won’t regret it.

Originally published at JamesWalpole.com.

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