Employment and Pay Implications of the Coronavirus

The phrase “we are all in this together” is increasingly being invoked regarding combatting the novel coronavirus (COVID-19). Taken literally, the phrase is unquestionably true in attempting to combat the virus through public policy and public health measures intended to flatten the curve. But the phrase also has implications for employment and pay.

The key implication concerns the tradeoff between employment and pay, specifically under the condition of economic recession, perhaps even depression, that is being induced by the spread of the virus. During past recessions, the traditional response of companies (and nonprofit and public organizations) has been to cut jobs, with a main consequence being that those who lose those jobs become unemployed and may drop out of the labor force altogether. Such job cuts are made in order to reduce labor costs. But there is another way to reduce labor costs: cut the pay of those who hold the jobs. Indeed, a particular targeted reduction in labor costs—say for example, 25 percent—can be achieved by cutting either jobs or pay.

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