When an employee's "market value" goes down, it does not warrant a pay cut though: the existing employment contract continues, and the value that the employee provides to the employer does not depend on the employment market.
I think the ethics (and legality?) of arbitrary pay cuts go hand in hand with arbitrary firings: cutting a salary to $1 is essentially the same as a firing. Legality then would logically depend on whether the employment contract is under a state jurisdiction with at-will employment or if there is a requirement of a just cause.