Out of nowhere, we have started to hear the term “furlough” being thrown around. In rapid-fire succession, companies disseminated press releases announcing that they plan to furlough “x” amount of people.
By definition, a furlough is a temporary layoff from work. Most people’s initial thoughts upon learning of it was that it was a softer, nicer act compared to the harsh-sounding “termination,” “fired,” “riffed,” “laid off” or “axed.”
Furlough implies that a person will soon return to his or her job. The company hopes that business conditions will improve and it can bring back its employees. In this current combination of a health, economic and job crisis all rolled into one big mess, using the term is misleading and disingenuous. It’s a feel-good ruse constructed to make it seem that everything will be okay and the corporation is actually in sound financial shape.
As time past, roughly over 40 million people are now out of work (if you count recent unemployment figures since mid-March, add all those who lost their jobs before the COVID-19 crisis, people who stopped collecting unemployment benefits, but did not find new jobs, those who have just given up looking and workers who have had their hours slashed). A vaccine has not been created yet and nor are we close to founding one. Businesses in highly impacted states, such as New York and New Jersey, are still closed.
Major companies, including high-end retailer Neiman Marcus, the once-iconic preppy J. Crew, Forever 21, Pier 1 Imports, Diamond Offshore Drilling, Gold’s Gym, McClatchy newspaper chain, Modell’s Sporting Goods and other big-name companies have announced bankruptcy plans. Other long-standing, household-name retail chains, such as Sears, Kmart, The Gap, GNC, Macy’s, Bed, Bath & Beyond, Hallmark, Papyrus and GameStop, along with others, have confirmed over 3,000 store closings in 2020.
Claudia Sahm, a former Federal Reserve economist, laments, “For a lot of those furloughed workers, a non-trivial number will have no job to go back to, because the company they worked for will have failed or will need fewer workers than they used to.”
The Associated Press reported, “Call it realism or pessimism, but more employers are coming to a reluctant conclusion: Many of the employees they’ve had to lay off in the face of the pandemic might not be returning to their old jobs anytime soon. Some large companies won’t have enough customers to justify it. And some small businesses won’t likely survive at all despite aid provided by the federal government.”
You don’t need a Ph.D. in economics to analyze the situation. Let’s just look at the odds of things improving to the degree that millions of people will soon get their jobs back. Disney, according to the Financial Times, furloughed 100,000 workers (though Disney disputes that the exact number has not been confirmed yet, only reported). The entertainment, film and parks conglomerate reported a 91% decrease in profits for the last quarter. What are the odds that all of its international parks and resorts will soon reopen and the usual throngs of people will magically reappear? How soon will the company be able to make blockbuster movies when social distancing is expected to go on for much longer?
Will the amusement parks eventually reopen? Yes, of course. However, it may take a long while until people summon up the courage to board a plane, rent a car, stay in a hotel, eat out at a restaurant and visit a theme park surrounded by people who may or may not have the virus.
The same holds true for sporting and music events, conventions, going to a movie theater, business travel, taking exotic vacations, hailing an Uber, staying at an Airbnb, participating in a Groupon event or shopping at malls and retail stores. We will eventually get back to these activities, but it will take a long time—barring any vaccines or smart ways to navigate life and commerce without the fear of getting infected.
Companies won’t be able to rehire people until they get some sort of clarity or actually see a resurgence in business. For the companies that are going through bankruptcy, they’ll have to let go of more people and won’t be hiring for a while. The airlines have already said that they don’t expect passengers to return anytime soon.
There just won’t be enough work to rehire furloughed people. For example, restaurants will be forced to implement policies that may only permit 25 to 30% occupancy. With less patrons, there’s no need to return to the previous staffing levels. Potential customers may take a wait-and-see approach. Since they’ve become accustomed to delivery, they’ll continue the routine until restaurants prove that they’re safe. They also may feel uncomfortable dining in a place where the wait staff wear gloves and masks.
Due to the increase in unemployment benefits offered through the multitrillion government stimulus plan, some furloughed workers may elect to keep collecting unemployment, as opposed to returning to work. It’s a reasonably sound business decision for a person to accept the additional $600 per week, on top of the $300 or so given by the state. They’d prefer to stay at home rather than risk their health by working at virus-infected slaughterhouses in Michigan or spend eight strenuous hours a day lifting, stacking, fetching and delivering heavy boxes at warehouse facilities.
As legendary investor Warren Buffett said during his Berkshire Hathaway shareholder conference, you have to bet on America in the long run. As a young country (compared to others around the world), the United States has endured a lot of tough times and tragic events. As a nation, we’ve always managed a way to survive and thrive—and we’ll do it again. It’s just unfortunate that companies are giving false hope to some people to make themselves look good.