Furloughs are the new layoffs

July 17, 2009 7:45:55 PM PDT
Furloughs, think of them as forced days off, seem to be the newest strategy to cut costs. But do they work?

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What we are seeing is more and more employees who are not working a full week because of their employer's economic situation.

According to the U.S. Bureau of Labor Statistics, at the end of 2007 we had 3.1 million people working part-time for economic reasons. The number increased at the end of 2008 and early 2009 to twice as many.

John Krumm was forced to visit the food bank today. He's a furloughed employee at the DMV in San Francisco.

"I went to the food bank to use the food bank so that I could make ends meet," said Krumm.

For him and thousands of other state employees, every other Friday is an unpaid day.

Chris Rosen is with the Haas School of Business at UC Berkeley. She says more states, companies and colleges are turning to furloughs to save money and jobs.

"Employers are trying to avoid layoffs which are seen as much more severe, throw people completely out of work," said Rosen.

Even President Barack Obama talked about the growing number of furloughs in his inauguration speech.

"The selflessness of workers who would rather cut their hours than see a friend lose their job, which sees us through our darkest hours," said President Obama in January 2009.

Besides keeping their jobs, employees who are furloughed don't see their pensions affected and employers save on severance costs and on retraining new workers once the economy improves.

Without the furloughs, clearly the nation's unemployment numbers would be higher.

"What it means is people have less disposable income so they are going to be buying less. It means the economy is going to get worse," said Rosen.

Some employers are opting for furloughs betting an economic recovery will soon come.

On Thursday, the University of California Board of Regents voted to impose furloughs for a year.

But UC President Mark Yudof has said he doesn't see the light at the end of the tunnel.

"So I'm not a pessimist about this, but I don't want to be dishonest with people. I want to say sitting here today, I can't say boy I've looked at the housing trends or I've looked at the income tax revenues, there is something out there that will be a quick turnaround," said Yudof.

If the economy doesn't turn around by next year, many expect these furlough days to continue. The problem, as Yudof said, is that we begin to lose valuable people in the work force.

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