I’m torn in that I think the flip-side makes perfect sense. If there is 1% deflation, why shouldn’t employees’ wages be cut by 1% across the board? At the same time I feel that’s the quickest way to see half your development team leave, even though we’re talking about less than the cost of a nice dinner each month.

In an environment where the market crashes and it dramatically affects revenue for a business, everything has to be on the table, from layoffs to hiring and raise freezes to voluntary cuts in pay (often to save the job). If you make $100k a year at “market rate” and there’s a huge crash, and you’re given the opportunity to cut your own pay to $80k or try to get a job for $60-90k, what do you do? It’s a tough call for anyone.

The question becomes what you pay new hires. On one hand, the prevailing salary is much lower, and the company can save money. However, people talk and new employees will eventually discover the pay disparity which will kill morale.