A salary freeze is supposed to be a short-term move that can enable a company that is in financial difficulty to prevent the wages increasing at the demise of the company. The idea is to suspend any normal pay increases for a period until the company is in a better financial position. The reactions from staff can vary and it will depend on the person as to how they handle this situation. The morale of individuals is low because of the effects the pay freeze has on potential earnings.
Salary freeze and the economic effect
The concept behind a pay freeze is understandable; you are helping to secure your future employment, for the time being, and those of your colleagues. But what it can mean in the economic terms is completely different, and can have a devastating effect on a local economy.
Even if a company has imposed a salary freeze, the utility companies are increasing each year the amount of money needed, along with food and clothing for your family. This means that the money that you have doesn’t go as far as it did the previous year; this can mean that many families that are dealing with pay freezes are becoming worse off.
Therefore, there is less disposable income and this can have an effect on the economic growth. There isn’t the money to buy luxury items that can increase the economic growth of an area.
To boost economic growth you need an influx of money; companies encourage people to spend more than they can afford, often paid for with loans and credit cards, which have high interest payments and can leave a person in a worse situation than before. But with economic growth, this should allow the companies to remove the salary freeze. But, often this is not the case and the situation just continues to spiral downwards.
If the cost of living is rising then the wages that are paid need to increase, at least in line with inflation. This allows a person to continue in the same financial situation, the cost of inflation; the goods and services needed are in line with the increase in the wages.
However, when these freezes are happening in government, should the freeze remain until the economic situation improves? The US lawmakers have seen a salary freeze since 2010; this is now causing contention amongst the ranks. However, their pay is more than 3 times the average America salary with an annual wage of $174,000 per year.
Is this restricting those great people that would consider a career but have chosen the private sector because they are able to demand a better wage? Alternatively, should the government be restricted for money offered for any position. Nevertheless, is it right to deny the increase in a wage even if it just reflects the rate of inflation?
There are very difficult times ahead, and the economic growth of America is reliant on many different factors. These all need to come together to help stabilize not just the American economic growth but also that of the wider economic growth of the world.