The first thing that companies do in response to poor demand in a recession is usually to lay workers off. Somehow, almost never do companies decide to keep employees but to ask everyone to take a pay cut. They know that while people may be grateful for a new job with lower pay once they are fired, they don't actually think that way when they haven't been fired yet. In other words, if a company tries to keep everyone on rather than fire them, workers will consider that as negative motivation and stop working well. Positive motivation can be a pretty popular choice too - Henry Ford, to appeal to the best workers and technicians in the country, paid twice what anyone else paid for similar skills. He called it efficiency wages. Positive motivation has been a well-known principle of employment - pay people more than the going rate, and they show you their appreciation by working harder.
But economists and hiring managers know the bigger truth in that today. When you offer someone higher wages as positive motivation, the goodwill they feel for you can be real. And it will certainly make them want to work harder and work better for you. The problem is, that people need new stimulation all the time. Pretty soon, the higher pay that you give them is going to be taken for granted, and efficiency will quickly slip. Well, so much for the positive motivation.
How about what happens to a worker when you cut pay without an explanation? Do they still work well because they are appreciative of having some job to go to during a recession? Or do they not care? Do they take their opportunities for granted and slack off? If you picked choice B, you really are remarkably astute. That's the way people's minds work.
People's minds work by comparing what they've been through with the experience of other people. If they look around them and find other people are making more money, they are going to resent this completely. And this resentment will never be forgotten. What the scientists are trying to tell us is that while positive motivation at least works for a short period of time, negative motivation - a pay cut for poor performance - breeds resentment forever.
So there you have it, psychology is an important reason for why there are so many in America who are jobless. If employers were to take pity on workers by lowering wages but still retaining them instead of firing them, they would hit back by working inefficiently, rather than be grateful. But a lot can depend on how exactly an employer imposes a pay cut. If it's done with no explanation at a time when the company is obviously doing well, of course it's something that won’t go over well with any worker. If it's done with a proper transparent explanation, things could go far better.
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