Undercover Economist: Why recessions aren’t all about job losses

Imagine a recession on Planet Vulcan. Thanks to weak demand, an able and hard-working Vulcan subordinate is simply not doing enough business to justify his salary.

The Vulcan boss calls his subordinate into the corner office for a frank and logical discussion of the options. They agree that it would be illogical to continue under the present arrangements, and that the Vulcan employee will accept a pay cut of 20 per cent for the time being. Both congratulate themselves on avoiding the bizarre human practice of sacking marginally profitable workers rather than adjusting their salaries.

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Tim Harford’s blog

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Tim, also known as the Undercover Economist, writes about the economics of everyday life.