View Poll Results: See OP: Which do you choose?

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  • -10% pay reduction for everyone

    28 84.85%
  • -10% of your department will be laid off.

    5 15.15%
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Thread: Lay-offs or pay cuts?

  1. #11
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    Re: Lay-offs or pay cuts?

    Quote Originally Posted by Kandahar View Post
    On a personal level...if my chances of getting laid off were the same as everyone else's, I think I'd prefer to roll the dice and vote for the layoffs. I'm confident that I can find employment fairly easily, regardless of how bad the economy is.
    If that's the case, the smart thing to do would be take the pay cut and find employment elsewhere ASAP.

    Again, it's simple math. Let's say you take home $1000 a week. You take a pay cut of 10% and you are down to $900 a week. If you lose your job though, you to $0 per week. Since you are in DC, if you go on unemployment you are only down to $359 per week.

    Let's say with the extra free time, you are able to get a job in 2-4 weeks being unemployed. You've lost somewhere between $2000 and $4000 if you don't take unemployment and between $1282 and $2564 if you do take unemployment.

    If you look for a new job while you are working at 90% of your old salary, and it takes you 4-8 weeks to find a job, you've lost only $400-$800.

    Risking the layoff and then looking for a job doesn't make any mathematical sense because you can still look for the job while accepting the pay cut. Even if it take 12-25 weeks to find the new job while taking the pay cut, you still come out with less loss than you would if you were on unemployment for only 2-4 weeks.

    Now, if you go 12-25 weeks on unemployment you will lose between $7,659 and $16,025.

    That's compared to $1,200-$2,500 by taking the pay cut.

    There's absolutely no benefit to rolling the dice if you think you can replace the job easily. The fact that you can replace the job easily is true whether you take the pay cut or not, so there is no tactical benefit to rolling the dice.

    It would actually be stupid to do it in that situation because the only reason to put up that kind of risk is if you can achieve some sort of massive benefit.
    Last edited by Tucker Case; 03-25-10 at 08:10 PM.
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  2. #12
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    Re: Lay-offs or pay cuts?

    Quote Originally Posted by Tucker Case View Post
    If that's the case, the smart thing to do would be take the pay cut and find employment elsewhere ASAP.

    Again, it's simple math. Let's say you take home $1000 a week. You take a pay cut of 10% and you are down to $900 a week. If you lose your job though, you to $0 per week. Since you are in DC, if you go on unemployment you are only down to $359 per week.

    Let's say with the extra free time, you are able to get a job in 2-4 weeks being unemployed. You've lost somewhere between $2000 and $4000 if you don't take unemployment and between $1282 and $2564 if you do take unemployment.

    If you look for a new job while you are working at 90% of your old salary, and it takes you 4-8 weeks to find a job, you've lost only $400-$800.

    Risking the layoff and then looking for a job doesn't make any mathematical sense because you can still look for the job while accepting the pay cut. Even if it take 12-25 weeks to find the new job while taking the pay cut, you still come out with less loss than you would if you were on unemployment for only 2-4 weeks.

    Now, if you go 12-25 weeks on unemployment you will lose between $7,659 and $16,025.

    That's compared to $1,200-$2,500 by taking the pay cut.

    There's absolutely no benefit to rolling the dice if you think you can replace the job easily. The fact that you can replace the job easily is true whether you take the pay cut or not, so there is no tactical benefit to rolling the dice.

    It would actually be stupid to do it in that situation because the only reason to put up that kind of risk is if you can achieve some sort of massive benefit.
    This assumes that if my firm offers to pay me 90% of my previous wage and I seek out a similar job, that the new job will pay me 100% of my previous wage. That seems implausible, as the pay cut will have probably stemmed from systemic economic difficulties which will affect similar firms as well.

    Besides, the way the question is phrased, I'm not voting to either take a pay cut or be laid off. I'm voting to either take a pay cut or risk a 10% chance of being laid off. So assuming your numbers are correct, my expected loss if I vote to risk the layoff is only between $128 and $256.
    Last edited by Kandahar; 03-26-10 at 01:59 AM.
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  3. #13
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    Re: Lay-offs or pay cuts?

    Quote Originally Posted by Kandahar View Post
    This assumes that if my firm offers to pay me 90% of my previous wage and I seek out a similar job, that the new job will pay me 100% of my previous wage. That seems implausible, as the pay cut will have probably stemmed from systemic economic difficulties which will affect all other firms as well.
    Since you said "I'm confident that I can find employment fairly easily, regardless of how bad the economy is." the assumption must be that there aren't systemic economic difficulties affecting other firms as well, otherwise your confidence is entirely misplaced.

    Also, if you retain the job at the paycut, you have the luxury of looking for another job and holding out until you get one that pays the old scale or higher.

    There's probably more than a 10% chance of pulling that off unless you currently work for one of the firms that have payscales in the top 10%.

    If your firm is already the highest paying firm, there's no chance. If it's average, there's a 50% chance.

    Besides, the way the question is phrased, I'm not voting to either take a pay cut or be laid off. I'm voting to take a pay cut or risk a 10% chance of being laid off.

    OK, let me phrase the same question differently. Let's say we're playing two handed poker. I put up $100 and you put up $1,000. You have a 90% chance of winning my one hundred dollars and a 10% chance of losing your thousand. We keep playing this way until I decide to stop.

    Would you take the bet? Or would you say no way.
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  4. #14
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    Re: Lay-offs or pay cuts?

    Quote Originally Posted by Kandahar View Post
    So assuming your numbers are correct, my expected loss if I vote to risk the layoff is only between $128 and $256.
    Where is that number coming from, just curious.
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  5. #15
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    Re: Lay-offs or pay cuts?

    OK, let me phrase the same question differently. Let's say we're playing two handed poker. I put up $100 and you put up $1,000. You have a 90% chance of winning my one hundred dollars and a 10% chance of losing your thousand. We keep playing this way until I decide to stop.

    Would you take the bet? Or would you say no way.
    I wouldn't ever take it. Statistically speaking, over 10 hands I win $900 and you win $1000. Since you will keep playing enough times to smooth out a few lucky hands, you will come out ahead in the end.

  6. #16
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    Re: Lay-offs or pay cuts?

    Quote Originally Posted by rathi View Post
    I wouldn't ever take it. Statistically speaking, over 10 hands I win $900 and you win $1000. Since you will keep playing enough times to smooth out a few lucky hands, you will come out ahead in the end.
    Exactly. Using the full wage as the metric, he loses over time and I gain.

    If we used the reduced wage as his wager (900), he'd break even over the long haul. But since he can't control when the game ends (just like being unemployed), I'd just wait until I got a string of luck (a couple wins in a row) and then pull out causing him to lose money and me to gain it.


    I could keep it up all day since I'm not risking that much each hand, but stand to gain a lot if it hits a couple times in a row. He's risking a ton for the best case scenario of small gains or breaking even.
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  7. #17
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    Re: Lay-offs or pay cuts?

    It depends. The problem with pay cut is that they have to reduce the amount of hours. If the industry wasn't doing that well, then a lot of people keep working lower amount of hours after the crisis. Layoffs are good, because it makes people go from one unproductive industry to a more productive one.

    I didn't have this thought in my mind when I voted though.

  8. #18
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    Re: Lay-offs or pay cuts?

    Quote Originally Posted by rathi View Post
    Paycuts are typically the better option in a recession. Laying people off means you lose their productivity, which can easily cancel out the money saved getting rid of them, especially in the long term. Furthermore, because of wide spread economic downturns, you aren't likely to lose employees to other companies even with reduced pay.
    Well, during recession productivity increases due to the ever realistic presence of layoffs. For the employee, it is to take a cut in pay. For the specific firm itself, it is to layoff 10%.
    It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
    "Wealth of Nations," Book V, Chapter II, Part II, Article I, pg.911

  9. #19
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    Re: Lay-offs or pay cuts?

    Well, during recession productivity increases due to the ever realistic presence of layoffs. For the employee, it is to take a cut in pay. For the specific firm itself, it is to layoff 10%.
    How do layoffs increase production? You might increase profitability, typically only in the short term, but you generally can't get more revenue from less people.

  10. #20
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    Re: Lay-offs or pay cuts?

    Quote Originally Posted by Camlon View Post
    It depends. The problem with pay cut is that they have to reduce the amount of hours.
    Not necessarily. You can still have the same number of hours.

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