Furloughs Forever

As if all the prognostications about a jobless recovery and permanently higher structural unemployment weren’t enough, along comes an observer who suggests that some of the nasty workplace innovations that came from this recession are here to stay.

Writing in BusinessWeek Chris Farrell to suggest that furloughs, pay cuts and other “innovative” corporate solutions are here to stay:

Thanks to the Great Recession, another corporate taboo has been shattered: large-scale pay cuts. As a general practice, companies typically resist slashing worker pay during downturns, especially for their white-collar employees. The preferred response to falling profits has long been layoffs. The main reason both managers and workers prefer layoffs to pay cuts is that pink slips seem to concentrate the pain while pay cuts spread the distress.

“Employers are reluctant to cut the nominal rate of pay,” says Daniel J.B. Mitchell, professor emeritus at the UCLA Anderson School of Management and the School of Public Affairs. “It causes morale problems and antagonizes the workforce.”

That may be true, but it’s an idea management felt free to ignore during the longest, most severe downturn since the Great Depression. Beleaguered managers burning the midnight oil decided not only to embrace mass layoffs but to institute pay freezes, pay cuts, and furloughs to a wider extent than before. Companies figured out they wouldn’t pay much of a price with the supply of unemployed and marginally employed workers so high.

Unfortunately, I think he’s right. The private US labor force have accepted their lot this time around like meek lambs. Led to the slaughter those who survived have counted themselves lucky to have jobs and wouldn’t consider rocking the boat under any circumstances.

Farrell contends that having seen success with these new tools during the recession, managers are not going to be reluctant to use them more broadly even when the economy recovers. He refers back to the ’70s when companies which had preached company loyalty suddenly discovered that mass layoffs weren’t the hemlock they supposed. Out went the concept of loyalty and in came ruthless reorganizations.

To cope with this new regime Farrell suggests that workers are going to have to save more, as he puts it provide their own unemployment insurance funds and start microenterprises, little side jobs that bring in extra money. These microenterprises would serve as the cushion when the inevitable furlough or “temporary” pay cut came along.

Good luck selling that one. I don’t think the American workers’ dream encompasses perpetual income uncertainty and extra work at side jobs just in case things go wrong. At some point industry will push the envelope too far and society will push back. The inevitable winner in that sort of contest is society.

I don’t dispute Farrell’s thesis and tend to agree that we will see more of these games from industry over the next few years. I just don’t think they can win this game long term.

• Become A Funded Futures Trader