Why Obama Should Cut, Not Freeze, Federal Wages

President Obama introduced a proposal to freeze federal salaries yesterday—or, as Annie Lowrey of Slate calls it, a “wishy-washy plan to hurt some workers without helping others.” Obama’s plan just underscores how much the conversation has shifted from our short-term employment crisis to our long-term deficit one. If Obama really wanted to tackle the employment problem, he wouldn’t freeze salaries—he’d cut them, then use the money to encourage more hiring.

Economists agree that, in recessions, it’s better to have more workers earning less than fewer workers earning more. But to preserve morale, companies generally prefer to lay off workers than cut salaries—it’s an effect called “wage stickiness.” Federal wages have been drastically stickier than private sector ones lately, so Obama could justify cutting them, then passing the money to cash-strapped states, or businesses that hire new workers. Instead we get a freeze that “seems more of a political salve for the deficit hawks” than a real solution. (More Barack Obama stories.)