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

Voters
33. You may not vote on this poll
  • -10% pay reduction for everyone

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

    5 15.15%
Page 4 of 4 FirstFirst ... 234
Results 31 to 38 of 38

Thread: Lay-offs or pay cuts?

  1. #31
    Enemy Combatant
    Kandahar's Avatar
    Join Date
    Jul 2005
    Location
    Washington, DC
    Last Seen
    10-15-13 @ 08:47 PM
    Gender
    Lean
    Liberal
    Posts
    20,688

    Re: Lay-offs or pay cuts?

    Quote Originally Posted by Tucker Case View Post
    No, I'm looking at the gamble from the perspective of a good gambler.

    when I calculate the risk side of the equation, I don't artificially lower that by factoring in the reward side. They are kept separate.

    The reward side of the equation is the 90% of the time you save that 10% of your pay. Done. Nothing else to do here.

    The risk side of the equation is the 10% of the time you lose it all chasing that low reward.

    You are ****ing up the risk side of your equation by taking the average. You aren't risking the average, you are risking it all. It only happens ten percent of the time, but the reason you keep the risk and reward sides separate is so that you can have a good idea of what it being risked and what the legitimate expected reward is.

    The reward in this case is minimal when compared to the risk.
    This is completely the wrong way to look at it. The AVERAGE reward (factoring in all the times you win and all the times you lose) has to be higher in order to get someone to take more risk, if we assume that most people are risk-averse.

    That's why the stock market pays better than the bond market on average. There's more risk. The stock market pays about 9% annually on average, and the bond market pays about 5% annually on average. What you're asking me to do is to ignore all the years that I lost money when calculating my "reward" (i.e. my expected value).

    "Risk" is not the same as "loss," and "reward" is not the same as "win." The reward is the expected value; the average that you'll win or lose. You incorporate both the good results and the bad results, weighing them according to their likelihood. The risk is not a measure of your maximum loss, it's a measure of how much variance there is. Then you can compare the risk and the reward to see if it's a tradeoff you're willing to make.

    Quote Originally Posted by Tucker Case
    You wouldn't be looking for a job in the 90% situation. That's the time you win. What do you win? Not having to look for a job. That's the reward side of the equation, and doesn't factor into the risk side of the equation.
    Incorrect. The AVERAGE expected value (i.e. reward) has to be higher to justify more risk.

    Quote Originally Posted by Tucker Case
    OK, then using your "conservative" estimates.

    Let's say it take 4 weeks to find a job with the layoff and 8 weeks to do it with the pay cut.

    Let's also say you get the unemployment, and only lose $641 dollars a week in the layoff scenario.

    This means that if you do get laid off, you will lose $2,564 over those 4 weeks.

    Let's say you take the pay cut. In 8 weeks you will lose $800. Reward in this situation = $7,200 salary over those 8 weeks, no risk of losing everything

    If you win the gamble, you don't lose that $800. Reward in this situation is $8,000 over those 8 weeks, but has a risk of losing everything.
    That's why I said it comes down to how much risk you're willing to tolerate. Taking the gamble of getting laid off is clearly the superior choice from an EV standpoint, it just depends if you're willing to take on more risk for more reward. Stocks versus bonds.

    Quote Originally Posted by Tucker Case
    Personally, I totally disagree with your assessment that it would take only 4 weeks to find a job. I actually think it's an absurd expectation. The national average right now is 4-7 months. http://economy.freedomblogging.com/f...job-survey.pdf
    Ya but I'm not the national average.

    Quote Originally Posted by Tucker Case
    But even using your absurdly optimistic (unrealistic?) estimate that you'd find a job in 4 weeks, you would be putting a minimum of $2564-$4000 on the line for the chance to not lose $800.
    ...and since I only lose that money 10% of the time, that's a good bet.

    Quote Originally Posted by Tucker Case
    Except it's not actually a higher reward. It's a lack of loss, and a relatively small one at that.
    "Reward" does not necessarily imply positive economic gain. Losing less money (or not losing any money) can be a reward too.

    Quote Originally Posted by Tucker Case
    An this is not really comparable to investing, because you don't go all-in on investments. It's gambling, pure and simple. You are betting your entire guaranteed income on an outcome that offers little to no reward.
    Wrong. I am betting a certain amount of money (which I can estimate based on my salary, my potential unemployment benefits, and the estimated amount of time I'd be out of work), weighing the probabilities, and deciding whether the risk/reward trade off is worth it.

    It's only "gambling" in the same sense that any financial decision is gambling.

    Quote Originally Posted by Tucker Case
    I'm not someone who takes the safe route. The money I make from the bar is parlayed into my poker fund which yields me pretty high returns on a very high risk investment.

    It's making smart bets that keeps me profitable in poker. I only take the high-risk bets when there is an equally high reward. I don't chase. I accept losses when it makes more sense to accept them.
    Then you should understand the concept of expected value. That was probably the first thing I learned about poker.

    The problem with the poker analogy is that the concept of risk doesn't exist in poker. You ALWAYS make the play that will earn you the most money over the long term (i.e. the play with the highest reward) regardless of the risk/variance in any individual hand. Good poker players never play scared. If you have a 2% chance of hitting your out and your pot odds are 1%, you pony up the cash even though you're going to lose it 98% of the time.

    That isn't true in finance. We assume at least some degree of risk-aversion. Why? Because we aren't playing hundreds of thousands of hands where the bad beats and lucky breaks will even out over time; we're only playing a few hands over the course of our entire lives. In finance, the more risky the gambit, the higher my average reward needs to be. Conversely, the higher my average reward, the more risk I'm willing to tolerate.

    Quote Originally Posted by Tucker Case
    The situation being described here does not fit into that category. Primarily because there isn't an e2qually high reward comparable to the risk involved.
    The reward (expected value) is higher in the layoff scenario. The risk is also higher (since the variance is greater). Whether you're willing to tolerate more risk for more reward just depends on how risk-averse you are.

    Quote Originally Posted by Tucker Case
    Even though statistically it is a break even scenario, it's not a bet worth chasing because it offers little profit. The gamble is not worth the meager reward.

    Interestingly enough, the reverse scenario is a good example of a smart high risk bet.

    Risking $100 on a 10% chance to win $900 is a smart bet. Sure, you will lose 90% of the time, making it very high risk, but over the long haul, making the same bet over and over again, you'll break even.

    When it does hit, however, you have a very high reward proportional to the risk involved.
    I think you are confused as to what "risk" is. Risk is a measure of uncertainty, not a measure of loss. For example, it's much more risky for me to jump out of an airplane with a parachute than for me to jump out of an airplane WITHOUT a parachute. In the latter case, I know with nearly 100% certainty what will happen. There is virtually no risk.
    Last edited by Kandahar; 03-29-10 at 03:44 AM.
    Are you coming to bed?
    I can't. This is important.
    What?
    Someone is WRONG on the internet! -XKCD

  2. #32
    
    TheGirlNextDoor's Avatar
    Join Date
    Dec 2009
    Last Seen
    09-24-14 @ 02:31 AM
    Lean
    Other
    Posts
    20,033
    Blog Entries
    21

    Re: Lay-offs or pay cuts?

    Quote Originally Posted by Goobieman View Post
    Let's say that you work in a department within a company. Your department has 100 employees, all of whom make about the same wage.

    Management informs your department that it needs to cut your overall payroll by 10%, and offers you, collectively, the choice:

    -10% pay reduction for everyone
    -10% of your department will be laid off.

    The chance of you being laid off is the same as everyone else's

    Which do you choose?
    Please explain your answer
    I would prefer an across the board 10% cut in pay for everyone. I would accomplish this by cutting hours for most, as that doesn't seem as intrusive for a lot of people than taking a 10% hit in lowering their wage (providing of course, they are hourly and not salary).

    I am starting a new job in two weeks - due to heavy lay offs in the school district here. It's a bad situation and I am sorely disappointed that they didn't try other methods to try and cut the budget.

    I notice (as many others) that no cuts started at the top - most of the deep cuts happened at Classified levels. Too bad; it takes a lot of people to make a school district run and 98% of the people who were laid off, worked at the school level. What's even more disheartening is that the Superintendent herself got a raise --- while others are losing their jobs. I would think it would make better sense to consolidate some positions at administrative level that would effect fewer people AND effect the student body the least.

    Apparently, I expect too much.

    I didn't wait around to see what their plans were for me.
    Fool me once, shame on you.
    Fool me twice....shame on me.

  3. #33
    Traditional
    hiswoman's Avatar
    Join Date
    Apr 2009
    Location
    Cypress, TX
    Last Seen
    04-04-13 @ 05:01 PM
    Gender
    Lean
    Conservative
    Posts
    3,051
    Blog Entries
    10

    Re: Lay-offs or pay cuts?

    I would rather that everyone take a pay cut than risk losing my job or see someone else lose theirs. As Tucker pointed out earlier, a 10% reduction in pay is easier to deal with than a 100% reduction in pay, even if it's only for a short time.




    Gestures, in love, are incomparably more attractive, effective and valuable than words.
    ~ Francois Rabelais

  4. #34
    pirate lover
    liblady's Avatar
    Join Date
    Aug 2009
    Location
    St Thomas, VI
    Last Seen
    03-14-16 @ 03:55 PM
    Gender
    Lean
    Progressive
    Posts
    16,165
    Blog Entries
    1

    Re: Lay-offs or pay cuts?

    Quote Originally Posted by Goobieman View Post
    Let's say that you work in a department within a company. Your department has 100 employees, all of whom make about the same wage.

    Management informs your department that it needs to cut your overall payroll by 10%, and offers you, collectively, the choice:

    -10% pay reduction for everyone
    -10% of your department will be laid off.

    The chance of you being laid off is the same as everyone else's

    Which do you choose?
    Please explain your answer
    as an employee who didn't receive a raise last year, i'm glad my company kept as many as possible, and happy i am one of those. of course i would take a pay cut to save jobs.

    Originally Posted by johnny_rebson:

    These are the same liberals who forgot how Iraq attacked us on 9/11.


  5. #35
    Matthew 16:3

    Join Date
    Jul 2008
    Location
    Everywhere and nowhere
    Last Seen
    06-24-17 @ 05:05 PM
    Gender
    Lean
    Progressive
    Posts
    45,603

    Re: Lay-offs or pay cuts?

    Quote Originally Posted by Kandahar View Post
    This is completely the wrong way to look at it. The AVERAGE reward (factoring in all the times you win and all the times you lose) has to be higher in order to get someone to take more risk, if we assume that most people are risk-averse.
    I had to edit my response down because it was too long. Let' s just stick with average expected losses and we'll look at the difference between average expected losses for both scenarios. That's the real expected gain between the scenarios. Then we'll look at hos easy it is to make up that difference with minimal effort.

    First, I disagree that the reward is higher in the layoff scenario when you have marketable skills.

    It's not about being risk-averse, it's about only taking on risk when the expected rewards actually warrant taking on the high risk.


    In my calculations I've chosen $52K per year as my example for calculation purposes. If you take the paycut, your expected losses over a year's span is $5,200. It's not a pittance, but certainly not the end of the world when you were making $52K before. $100 per week.

    If you take the layoff, your expected losses are $64.10 per week, or $3,330.20 per year.

    The difference between $5,200 and $3,333.20 is $1,866.80. That's your expected reward in the layoff scenario.

    That really is getting into the level of "pittance".

    This is expected reward is the same for all salaries large enough to warrant the maximum unemployment benefits.

    No matter how much the actual expected losses at 10% of a pay reduction, the only amount that decreases the expected losses in the layoff scenario is the amount of money that is gained by unemployment benefits.

    So in any situation where maximum unemployment benefits can be received, the difference in expected losses between the layoff and the paycut scenarios will always be $1,866.80. Check for yourself.

    At $2,000 per week, the expected loss with the paycut is $200 per week. The average expected loss for the layoff is $164.10 per week because you'd still only make 359 per week on unemployment. The average expected losses over a full year are: 10,400 for the paycut and $8,533.20 for the layoff. Difference: $1,866.80.

    For such minimal expected gains, the risk is definitely not worth it.

    Here's why:

    I believe the current minimum wage in DC is something like $8.25 per hour. This means that taking on any second job and working just 5 hours a week will garner you a better expected loss than taking the layoff would.

    Taking on a second job working just 5 hours per week at minimum wage in DC will net you $2145 in a year. When we deduct this from the $5,200 your expected losses from the paycut + second job working 5 hours per week scenario = $3055. I happen to have a second job that pays more than minimum wage and has similar hours per week as the described situation, so I know for a fact that they can be found fairly easily. It doesn't require much effort, and it's only drawback is that I am not free on most Saturday nights, although I'm always free to request a day off. That's the full extent of the inconvenience factor. Even using the lower Federal minimum wage, you still essentially break even at $7.25 per hour with only 5 hours a week.

    I'm showing that number to give an idea of how absurdly easy it is to make up the difference between the scenarios at the given pay scale as well as to illuminate the extremely marginal nature of the gains in the layoff scenario when one doesn't even factor in the reward of being able to look for a better-paying primary job.

    Again, due to the marginal nature of the expected value the only reason to accept the layoff risk is an aversion to job hunting and/or taking on a second job. That's the only thing that can be factored in that adds to the reward side of the layoff scenario enough to warrant taking on the risk, because the financial expectations are at best marginally better than the pay cut and at worst marginally worse than paycut + second job situations.

    Essentially, the "higher reward" in the layoff scenario is virtually non-existent because while it is true that minimizing losses is a reward of it's own, it is also true that holding on to a guaranteed better position for capitalizing on better opportunities is a type of reward of it's own.

    That factor coupled with the extremely marginal financial reward of risking the layoff makes the gamble not worth the risk.

    It's easy to minimize the expected financial losses from the guaranteed better position that exists with taking a paycut.

    In fact, not only is it easy to minimize the expected losses, it's actually fairly easy to make them better than the expected losses from the high risk position.

    This is because the difference in expected losses is jack ****. Even in Wyoming or Georgia, the states with the lowest minimum wages at $5.15 per hour, one only needs to work an average of 7 hours a week at minimum wage in order to make up the difference in expected losses.

    That's definitely not a high reward over time. Both scenarios lose over time. Neither of them offer gains.

    Since the reward for taking the layoff is an attempt to minimize losses, and the difference in expected losses are minimal at best, one can easily argue that the reward of being in a guaranteed better position to capitalize on improved opportunities (i.e. holding out for a better paying job) is enough to outweigh the marginal benefits that can be attained by taking on an absurdly high risk (a potential loss of full salary minus $18,668, which is what you'd make if you received the maximum unemployment benefits over the course of a full year.)

    The difference in expected losses per week is only $35.90. That's it. That difference can be made up very easily, with absolutely no risk whatsoever.

    No matter how much you make, that's the maximum average expected benefit that can be achieved by risking the layoff.

    The main point of contention I have with your analysis is that you are labeling the expected reward as "high", when it is at best marginal.

    Since the bet is always a losing one over time, it's better to fold and stay content with the better guaranteed position.

    This isn't about aversion to risk, it's about only taking on risk when the expected rewards are great enough to warrant taking on that risk.

    That isn't the case in this scenario.

    It's like "investing" in a stock you know will either lose all of your of money or not make any money at all versus "investing" in a bond that will definitely lose a very small amount money, but that small amount of money you do lose can easily be made up elsewhere.

    The only reason stocks are worth the risk is because the returns are proportionally better as compared to the risk. You will, more often than not, gain over time. If the only options you had with stocks are losing money or not making money, there is no smart reason to accept the risk.
    Tucker Case - Tard magnet.

  6. #36
    Goddess of Bacon

    Join Date
    Feb 2007
    Location
    Charlottesville, VA
    Last Seen
    05-28-12 @ 09:35 PM
    Gender
    Lean
    Undisclosed
    Posts
    13,988

    Re: Lay-offs or pay cuts?

    Yeah, I don't do the whole risk analysis bull**** because math makes my head hurt.

    But, I would either take the lay off and find other work (because it's not hard at all for me to find work). While I look for work, I could draw unemployment because I was laid off.

    Or, take the pay cut and look for other work.

    Really the two are interchangeable.

  7. #37
    I'm not-low all the time
    Kushinator's Avatar
    Join Date
    Jan 2006
    Location
    West Loop
    Last Seen
    Yesterday @ 08:06 PM
    Gender
    Lean
    Independent
    Posts
    16,263

    Re: Lay-offs or pay cuts?

    Quote Originally Posted by rivrrat View Post
    Yeah, I don't do the whole risk analysis bull**** because math makes my head hurt.

    But, I would either take the lay off and find other work (because it's not hard at all for me to find work). While I look for work, I could draw unemployment because I was laid off.

    Or, take the pay cut and look for other work.

    Really the two are interchangeable.
    Well..... To a point.

    If we were to map out a persons total income from the time they worked, until the time they retired, and appropriated that based on the total consumption they will need until they die (and assuming you cannot find work instantly); taking a 10% cut in pay does not reduce your potential lifetime income (and your average yearly consumption which is a function of that said income) as much as getting laid off (long run). In the long run, the difference is incrementally marginal, as in it does not make a great difference. In the short run however, it makes quite a bit depending on time.

    Say you begin working at age 20, and retire at age 65 with an initial salary (at age 20) of $25,000/year and living to age 80. For the sake of complexity, let us assume you are going to earn at least $25k/year for the next 45 years; you will have a life cycle income of $1,125,000. Given your estimated life span, you will be averaging a maximum consumption (assuming only income) of $18,750 per year on average. For added complexity, we can add say a 3% real annual expected increased in salary: [45/Σ/n=1] 25,000 + [((1-.97)x25,000)n+1] : and include a limit with period of time where your salary would decrease by 10% for two years, but doing so will only confuse and not have a significant effect on the theory.

    A 10% cut in pay for two years results in a decrease of about $5,000 from your life cycle income to $1,120,000 resulting in a decreased maximum lifetime consumption average of $18,666.67 (or about $84/year).

    The average time to find employment is about 19 weeks after you were first "released". This accounts to about $9,100 in lost income, or a decrease in your average life cycle income to the tune of : $18,598.33 or a decrease in $150/year. Does not seem so bad right? However, not everyone will live to 80.

    In the short run however (as Tucker pointed out), the decline in potential standard of living is greater. Your max consumption average for two years (not considering financing) would be $20,450 as opposed to the $22,500 with taking the 10% cut. The shorter we draw this out, the greater impact it has on your standard of living. However, you only have a 10% risk of incurring such a reality so this really becomes a judgment call based on ones short term expectations. Keep in mind this does not include unemployment or taxation and is a simple illustration.

    I am willing to assume that the lower the percentage your disposable income is, the less likely you are going to be willing to risk losing your job.
    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

  8. #38
    Goddess of Bacon

    Join Date
    Feb 2007
    Location
    Charlottesville, VA
    Last Seen
    05-28-12 @ 09:35 PM
    Gender
    Lean
    Undisclosed
    Posts
    13,988

    Re: Lay-offs or pay cuts?

    Quote Originally Posted by Goldenboy219 View Post
    Well..... To a point.

    If we were to map out a persons total income from the time they worked, until the time they retired, and appropriated that based on the total consumption they will need until they die (and assuming you cannot find work instantly); taking a 10% cut in pay does not reduce your potential lifetime income (and your average yearly consumption which is a function of that said income) as much as getting laid off (long run). In the long run, the difference is incrementally marginal, as in it does not make a great difference. In the short run however, it makes quite a bit depending on time.

    Say you begin working at age 20, and retire at age 65 with an initial salary (at age 20) of $25,000/year and living to age 80. For the sake of complexity, let us assume you are going to earn at least $25k/year for the next 45 years; you will have a life cycle income of $1,125,000. Given your estimated life span, you will be averaging a maximum consumption (assuming only income) of $18,750 per year on average. For added complexity, we can add say a 3% real annual expected increased in salary: [45/Σ/n=1] 25,000 + [((1-.97)x25,000)n+1] : and include a limit with period of time where your salary would decrease by 10% for two years, but doing so will only confuse and not have a significant effect on the theory.

    A 10% cut in pay for two years results in a decrease of about $5,000 from your life cycle income to $1,120,000 resulting in a decreased maximum lifetime consumption average of $18,666.67 (or about $84/year).

    The average time to find employment is about 19 weeks after you were first "released". This accounts to about $9,100 in lost income, or a decrease in your average life cycle income to the tune of : $18,598.33 or a decrease in $150/year. Does not seem so bad right? However, not everyone will live to 80.

    In the short run however (as Tucker pointed out), the decline in potential standard of living is greater. Your max consumption average for two years (not considering financing) would be $20,450 as opposed to the $22,500 with taking the 10% cut. The shorter we draw this out, the greater impact it has on your standard of living. However, you only have a 10% risk of incurring such a reality so this really becomes a judgment call based on ones short term expectations. Keep in mind this does not include unemployment or taxation and is a simple illustration.

    I am willing to assume that the lower the percentage your disposable income is, the less likely you are going to be willing to risk losing your job.
    For me, I'd be talking about being unemployed for like... a couple of weeks. It really wouldn't be a big deal and either option would be interchangeable with the other. I'd make enough on unemployment to cover my bills for two weeks, much like I would if I took a 10% pay cut for a couple of weeks.

Page 4 of 4 FirstFirst ... 234

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •