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.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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