I read this Post from Alex Tabarrok, and am reminded of the old story of two Drunks on a train, who have run out of booze. Both were planning to go to New York City, but the lack of liquor was a real problem. One asked the Other if they were coming into Grand Central Station. The Other said, "No, it is only Albany,’ for which the reply was, "Close enough!" Bad story—but I am trying to imply that Need alters the context of all arrangements. No Employer I know of ever discovers his exact needs for any extended period of time. He is Hiring on an ad hoc basis, and rarely can remember the personnel arrangements he has previously made. He cannot withstand the allegation that he is discriminating against people by multi-tier Wage grants based on anything but skill levels. This Employer type offers Wages at levels previously successful at acquiring Skill levels required, and will raise those Wages if Employees cannot be acquired otherwise, This manner of Hiring is perhaps the only one acceptable over Time, when continually faced with multiple Job listings per Quarter. There are some economists, and many Businessmen, who imagine that lowering Wage levels is easy. It is clear that such negotiations must be conducted on a per-person basis, with all Job applicants knowledgeable of correspondent Wage levels elsewhere in the company and market. Good Luck!!
This Post may explain Why there is contention about Wage levels in the first place. Wage happens to be an elemental Cost in the first place, non-replaceable and substitution-proof, so that it must be accounted. There is no direct relationship between Wage levels and Profitability, so there is no guarantee that a reduction in Wages will bring an increase in Profitability. There is even economic motivation to suggest that lower Wages could bring less Profitability because of a real decrease in Consumption by labor. An economic model could even be constructed to suggest that an increase in Wages could lead to higher Consumption and greater Profitability, if the later was based on a per-item unit basis. Business personnel, though, like to think that cutting the Income of others will grant them some advantage with their own Incomes; they envisioning a greater capacity to maintain their own personal Income levels. The later ability has rarely been proven in the face of overall Income decay, but pardon them for the foolishness of their own attitudes.
My advice is to forget the words of economists, who suggest solutions for problems non-apparent. We do know that Consumption is Down, and any reduction of Wages will commit to further reduction in Consumption. We know that a reduction in Wages will lead to a reduction in Productivity as well, as labor feels overworked and underpaid. Economists identify with Business far too often, maybe because they are mainly paid by Business organizations–even in the academic setting. I like to think that both economists and business personnel get wrapped up in their retirement programs, and tend to believe that what leads to their own personal benefit leads to economic success. There might be even less relationship in this arena, than in the area of Wages and their impact upon Profitability. The only sure Bet to be made is that the most well-off people will complain the Most, when losses are endured. lgl