I think it goes like this...
1. Before recession. $x pay = 100% output
2. During recession. $X-Y = and requires 120% output (because more are retrenched)
3. At some point, after lots of productivity gains on the company front and economic front...workers gets burnt out... and things have not improved on the monetary part....
and so it becomes... $X-Y = 80% output
So, there is no slacking. Just like we adjust those economic reports for inflation etc... the workers adjust their output to match the potential gains.
In other words, don't try to use cost cutting as a way to boost profits or the economy. It stop working after some time. The talented will leave...and soon those who are loyal and experienced will also leave.
It applies to the corporate world..and I am sure it will also apply to the country.