Sharing the sacrifice, minimizing the pain: Optimal wage reductions.
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ABSTRACT:
SUBMITTER: Miller K
PROVIDER: S-EPMC7445489 | biostudies-literature | 2020 Nov
REPOSITORIES: biostudies-literature
Publications
Sharing the sacrifice, minimizing the pain: Optimal wage reductions.
Economics letters 20200825
Faced with temporary revenue shocks, employers may implement wage reductions - a common response to COVID-19 for U.S. universities. I provide a framework for optimal reductions when labor is inelastic wherein a planner balances "minimizing the pain" and "sharing the sacrifice." I show that for a broad class of utility functions the optimal schedule includes (1) a cutoff wage below which the reduction is zero and (2) weakly progressive reduction rates above the cutoff wage. I illustrate the resul ...[more]
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