want to take a pay cut?

artificial intelligence automation job changing job retention labor markets robotics subjective utility technology at work The Great Resignation The Great Reshuffle wages

Are you willing to accept a pay cut if an employer promises to make better work by applying technology to your job?

David L. Passmore https://davidpassmore.net (Distinguished Professor, Emeritus, Penn State; Academic Visitor, University of Pittsburgh)

Trade Tech for Pay?

A Survey by Lucas Systems, Inc.

Lucas Systems, Inc. (n.d.a), a Wexford, Pennsylvania, developer of technology solutions for distribution centers, commissioned a study of 500 on-floor warehouse workers across multiple geographies and job roles in the U.S. An eight-page brochure, Voice of the Warehouse Worker Insights (Lucas Systems, Inc. 2022a), reported findings of the study designed to identify “how workers feel about stress, the need for technology, and working with robots” [Lucas Systems, Inc. (2022b), para. 3 ).

Survey Findings

A statement (Berardi, n.d.) distributed on June 29, 2022 announcing the brochure’s release indicated that

“Nearly 3 out of 4…on-floor workers said they would consider a pay cut at another company for an opportunity to use technology if it helps them in their job. Workers also said they are physically spent, spending over a third of their day walking and would welcome tech’s help in the form of robots or other tech tools.”

A concentration of younger workers – 81% of Generation Z1 workers responding to the survey – was at least somewhat likely “to trade tech for pay” (Lucas Systems, Inc. 2022a, 2). Note that this is not a sentiment to accept a pay cut in a current job, but to consider lower than current pay in an entirely new job.

This finding is not unique. For instance, Mas and Pallais (2017) found that the average national call center worker was willing to give up 20% of wages to avoid a schedule set by an employer on short notice and 8% of wages for the option to work from home. For another example, Yong (2022) reported that a poll conducted in the Philippines showed that 73% of respondents would forgo a pay raise or promotion for better work-life balance, overall well-being, and happiness.

Other Findings

Other conclusions extracted from the brochure released by Lucas Systems include (Berardi 2022, para. 5):

Lucas Systems, Inc. (2022a) declared that: technology tools are essential to the well-being and retention of workers; training is vital to the adoption of technology tools; and gradual introduction of workers to technology tools is necessary (p. 8).

Perhaps a Broader Meaning Exists

Certainly interesting information is presented in the brochure distributed by Lucas Systems, information that points to the value proposition for products that Lucas Systems manufactures.2 I wish I could examine documentation about the collection, organization, and analysis of the survey data. Even so, the information from the Lucas Systems’ survey stimulates assessment of the floating meanings of work and pay as our economy suffers through a lingering pandemic, is besieged by political division and unrest, and is buffeted by war and rumors of war, all factors that have collided to hobble worldwide supply chains for human and capital resources.

The Work and Pay Plexus

A Very Narrow View

Taking a narrow, pecuniary view, pay originates from a transaction, an exchange of time and effort by workers for money from the owners of capital. The owners of physical capital buy human capital for production. A commodity exchange. The workers are as interchangeable as the paper currency they receive. Neat. Separate. Symmetrical. But, largely a theoretical characterization.

Buyers and sellers meet at a price. Labor supply, then, is the amount and kind of labor that is available at a given wage. Need more labor? Increase the wage. What is the optimal wage? Just enough to supply the human capital for production. All following the textbook, right? Almost as lawful as, say, Archimedes’ Buoyancy Principle. Now, before you yell “Eureka!” and run naked through the streets of Syracuse as Archimedes did when he noticed that he displaced water when he sat in the tub, consider that the concept of pay is more knotty and involuted than you first might have thought.

Well, Maybe a Little More Than That?

Let’s crack the stern exterior of the wage-labor theory of exchange with a dose of economic reality. Some economists have acknowledged that even the sequence of “worth-as-pay-as-money” can incorporate non-pecuniary elements. In Wealth of Nations, Adam Smith wrote in 1776:

“The wages of labour vary with the ease or hardship, the cleanliness or dirtiness, the honourableness or dishonourableness of the employment. Thus in most places, take the year round, a journeyman tailor earns less than a journeyman weaver. His work is much easier. A journeyman weaver earns less than a journeyman smith. His work is not always easier, but it is much cleanlier. A journeyman blacksmith, though an artificer, seldom earns so much in twelve hours as a collier, who is only a labourer, does in eight. His work is not quite so dirty, is less dangerous, and is carried on in daylight, and above ground. Honour makes a great part of the reward of all honourable professions. In point of pecuniary gain, all things considered, they are generally under-recompensed….Disgrace has the contrary effect. The trade of a butcher is a brutal and an odious business; but it is in most places more profitable than the greater part of common trades. The most detestable of all employments, that of public executioner, is, in proportion to the quantity of work done, better paid than any common trade whatever.” (A. Smith (1776), Book 1, Chapter 10, para. 5)

In practice, economists identify this type of variation in pay as a compensating differential (R. S. Smith 1979, 339). These differentials are higher wages that are paid to workers who perform jobs that have particular hazards or other unpleasant features associated with them. Some examples are: premium pay for working second- or third-shift work schedules; hazard pay for combat, police protection, or fire service; higher pay for underground coal miners exposed to the risk of injury and lung disease; or pay differences by geographic region that reflect costs of living differences or remoteness of location. The role of a compensating differential is to maintain a supply of labor in challenging conditions that might otherwise depress interest in acquiring or staying in a job.

Workers have their own ways of differentiating compensation. Workers can react negatively when faced with pay cuts in their own jobs, especially when the reasons for the cuts are not judged by workers as reasonable (Chen and Horton 2016). For example, Coviello, Deserranno, and Persico (2022) described a pay cut at a call center that was motivated by cost-cutting, not by lower productivity of call center employees. Some workers quit. Others, though, engaged in counterproductive behavior that hurt the firm as well as the pay of commission-driven employees. Some workers, especially those among with the highest expressed loyalty and longest work tenure, intentionally sold the wrong items, as opposed to simply optimally shirking on effort in response to the pay cut.

Greenberg (2001) observed what he described as “reciprocal deviance,” that is, employees’ perceptions that their employers’ defaults on their obligations encouraged employees to respond with similar acts of deviance. In particular, theft (termed, in a Orwellian sense, “shrinkage” in retail industries) rose during a period in which pay was temporarily reduced by 15%. In some cases, pay cuts to current workers can be more disruptive that downsizing the numbers of employees (Yoon 2017). Pay not only produces buying power but also becomes a measure of self-worth and respect from others.

Consistent with the findings from the survey by Lucas Systems, research on variation in wages and salaries reveals that workers and employers see more meaning in pay than just plain money.

Is That All There Is?

From a macro perspective, the meaning of work is a shared cultural concept associated with values, beliefs, and norms. Among individual workers, though, the meaning of work is variegated, contextual, and idiosyncratic. According to Rothausen and Henderson (2019),

Jobs can fulfill (or not fulfill) basic human needs (some would say rights) for dignity in work, meaningful work, and some level of economic justice. Jobs also affect workers’ lives, and thus their worlds, fundamentally….Therefore, key meanings of work spring from basic human needs from work, and from workers’ larger worlds, and these elements likely impact workers’ satisfaction related to their jobs. (p. 359)

Pay is not the only return to investment of time and efforts in work. Seen broadly, work permits the expression of talents, empowers the development of self, offers friendship and social relations, and affords a transcendent role in a collective contribution to an endeavor larger than self (see (Rothausen and Henderson 2019, Table 2)). This many-sided, complex perspective is a key attribute running through manifold theoretical perspectives and empirical research streams focusing on the meaning of work that human beings seek. “Overall job satisfaction is the sum of the evaluations of the discriminable elements of which the job is composed” (Locke 1969, 330). Pay alone is not the sole factor that draws and retains a worker to a job.

So, perhaps the respondents to the Lucas Systems’ survey who said they would consider a pay cut are weighing bundles of non-pecuniary attributes of potential jobs as important enough to compensate for lower pay.

Huh? A Pay Cut?

Yep. A Cut Might Fulfill Broader Needs

Although accepting or seeking a pay cut might seem like an error in judgment, workers might view the trade-off of pay for other non-pecuniary returns to work as a way to maintain or increase the subjective utility of work to satisfy their many diverse wants. In this way, seeking or accepting a pay cut might be viewed as a rational decision to achieve a satisfaction balance in life.

As Blanchflower and Oswald (2017) found, having a job is an essential determinant of satisfaction with life, no matter what income level a person has attained. In what is almost a transcendent conception of work, Coleman and Ramsey (2021), career coaches, consider a paycheck as a “clear path to doing work you love” (the subtitle of their book). Our personal experience can attest to the belief that money is but one form of compensation. Of course, the role of money in our lives cannot be dismissed entirely. Clark (2018) concluded that an almost universally accepted research outcome in studies of the economics of happiness is that “individuals who are observed to have higher levels of income in cross-section data also report higher levels of subjective well-being” (Section 2.1).

Profits Are at an All-Time High – Why Not Share?

Many observers wonder why pay cuts are even necessary while corporate profits are at a 70-year high (profits over time are displayed in Figure 1). The Federal Reserve Bank of Richmond (2021) found that 80% of firms increased prices to cover the higher costs of inputs during recent pandemic and inflationary periods. Also, the economic chaos during these periods offered opportunities to raise profit margins beyond the increase in costs, especially among larger firms. For instance, a 2022 survey of 1,000 retailers revealed that over one-half of respondents raised prices beyond rising costs and offered fewer or no discounts during the holiday season (“More Than Half of Retail Businesses Are Using Inflation to Price Gouge” 2022).

*U.S. Quarterly Corporate Business Profits After Taxes, 1952-2022.* <br> (billions of dollars, seasonally adjusted; graphic created from  @federalreservebankofst.louis.)

Figure 1: U.S. Quarterly Corporate Business Profits After Taxes, 1952-2022.
(billions of dollars, seasonally adjusted; graphic created from Federal Reserve Bank of St. Louis (n.d.).)

Reasons given from the employers’ side for not sharing this high rate of profitability with workers include:

In short, it’s ours, not yours.

Fitting with these reasons, workers’ share of income from production has declined steadily. A 2019 McKinsey Global Institute report (Manyika et al. 2019a.) documented the decline in labor’s share of income in the United States. Although labor’s share already had started to decrease in the 1960s, McKinsey estimated that three-fourths of the entire post-1947 decline occurred between 2000 and 2016 (see trends in Figure 2). The steepest part of the decline – from 63.3% in 2000 to 56.7% in 2016 – followed a moderate downward drift in the 1980s and early 1990s, and a slight recovery in the late 1990s.

*McKinsey Global Institute Estimate of Declining Labor Share of Income in the United States* <br> (Graphic from @manyika2019a.)

Figure 2: McKinsey Global Institute Estimate of Declining Labor Share of Income in the United States
(Graphic from Manyika et al. (2019a).)

Manyika et al. (2019b) even more narrowly attributed this decline to specific industrial sectors:

Twelve sectors that make up about one-third of employment and 44 percent of economic output explain the overall decline in labor share or increase in capital share. These sectors represent a broad and diverse set of economic activities. They are: mining and quarrying; construction; real estate; coke and refined petroleum; motor vehicles; pharmaceuticals and chemicals; computer, electronics, and optical products; publishing, audiovisual, and telecom; computer programming and consulting; information services; wholesale and retail, and transportation and storage. [emphasis mine] (Part 2)

Improvements in technology in these 12 sectors led to the substitution of capital for labor and the creation of intangible and intellectual products that have faster depreciation cycles than for tangible equipment. These factors helped transportation and storage firms, a subsection of which Lucas Systems serves, join in the 12 sectors that accounted for the largest declines in the labor share of income. The findings of the survey by Lucas Systems indicate that workers also might see some advantages to the capital-labor substitution that can help rationalize their sentiments about trading pay cuts for increasing technology at work.

But, Wait, Isn’t It the Economy, Stupid?

It’s the economy, stupid” was a widely-quoted catchphrase authored by James Carville, a strategist in Bill Clinton’s successful 1992 campaign for U.S. President, to remind campaign workers to stay on message. Thinking along these lines, perhaps it is a mistake to over-analyze the willingness of workers to accept lower pay with anything other than ordinary concepts of supply and demand. Maybe it is just that….the economy?

The U.S. economy has faced what some people have called The Great Resignation, but perhaps a better characterization is The Great Reshuffle. Job openings and job quitting have been at all-time highs for months, while layoffs fell to a record low. Employers raised wages to attract workers. All while the threats to traditional work arrangements from the pandemic were pervasive. Yet, about one-half of job quitters did not drop out of the workforce. They quit to move to new jobs.

Willis Towers Watson polled 9,658 U.S. employees from large and midsize private employers across a broad range of industries in December 2021 and January 2022 (Willis Towers Watson 2021). Over half of workers (56%) said pay is a top reason they would look for a job with a different employer. Forty-one percent would leave for a 5% increase. But almost 20% said they’d take a new job for the same pay — suggesting factors other than wages are important, too – as respondents to the survey from Lucas Systems indicated. Health benefits, job security, flexible work arrangements and retirement benefits were behind pay, respectively, as the top five reasons employees would move elsewhere. Many survey respondents expressed preferences for remote work just as employers were encouraging workers to return on-site to the office.

As a result, the economy has featured an almost unprecedented sellers’ market for labor. Elting (2021) summarized the critical elements of the current unique market for labor:

Employers must compete for workers because there are far more open slots than job applicants, and workers are smart enough to recognize that. Yes, they’re voting with their feet in favor of more flexible work hours, continued availability of remote work, higher wages, and better treatment, but the context that makes that possible, the basic calculus of supply and demand in the labor market, goes ignored. There are a lot of jobs and people are re-entering the labor market with reluctance and recalculating their options.

So, it is the economy, after all. The demand for labor post-pandemic was driven by the release of pent-up consumer demand. The need for workers to return to work ran head-on into reluctance to return due to such matters as the unavailability of child care. Time away from work and COVID stimulus checks to households during the pandemic offered time and income buffers for workers to ponder whether retirement was best or whether they wanted to seek or train for new work that might raise their subjective well–being.

In a way, the pandemic and the disruption around it ironically created opportunities for workers. One door closes, another opens, allowing a kind of creative destruction that becomes possible during periods of change and chaos.

A working class hero is something to be.
~ John Lennon

Starter Fluid for This July 4 Posting

An-Li Herring, reporter for 90.5 WESA-FM Pittsburgh NPR, conducted an interview with me about the brochure summarizing the findings from the survey that was distributed by Lucas Systems and, then, incorporated the interview into her article, “Survey: As online ordering grows, warehouse workers say they need more tech to save their bodies” (Herring 2022). I gathered the notes I prepared for her interview with me to write this blog posting after Ms. Herring’s posting was published.

Last updated on

[1] "2022-08-12 04:46:35 EDT"

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  1. Researchers and popular media use the mid- to late-1990s as starting birth years and the 2010s as ending birth years of Generation Z (“Generation Z” 2022). I don’t know about you, but I believe that stereotyping demographic groups simply by a range of birth years is limiting, at best, and could lead, at worst, to overt or covert discrimination. .↩︎

  2. Lucas Systems reports on its website that “With the help of Lucas, [I deleted firm name] has seen a 40% increase in throughput while reducing labor by 20%” (Lucas Systems, Inc., n.d.b).↩︎



For attribution, please cite this work as

Passmore (2022, July 4). NOTES FROM PITTSBURGH: want to take a pay cut?. Retrieved from https://davidpassmore.github.io/blog/lm/2022-06-30-paycut/

BibTeX citation

  author = {Passmore, David L.},
  title = {NOTES FROM PITTSBURGH: want to take a pay cut?},
  url = {https://davidpassmore.github.io/blog/lm/2022-06-30-paycut/},
  year = {2022}