Tough times lead to more worker furloughs – just ask Chicago

For millions of Americans, this might be the year of the furlough.

Over the course of a month or so, workers – both white-collar and blue – may have to take several days off whether they want to or not. Call it a temporary pay cut – an action that is sold by management as a way to help save some jobs.

It is a phenomenon that is coursing through the workplace, especially in state and local governments. Although companies tend to do mass layoffs, there is a growing trend to impose private-sector furloughs, especially for the white-collar workforce.

On Monday, the doors to City Hall, libraries, and health clinics across Chicago remained locked for the first of three furlough days the city has scheduled for 2009. Officials estimate the restricted-service days will save the city $8.3 million.

For some people who get furloughed, it can be a major financial penalty. But for others, it beats the alternative: getting laid off.

"It's a financial burden none of us would want even in rich, fat times," says Bill Kahnweiler, an associate professor of human resources at Georgia State University in Atlanta. "But relative to getting laid off and losing the job, I'd rather get furloughed, knowing I could come back."

Although the Bureau of Labor Statistics (BLS) doesn't keep track of furloughs as a separate category, it says there has been a sharp increase in the number of workers who are working part time or have involuntarily reduced hours. In June, some 6,783,000 workers reported they were working part time because of business conditions, compared with 3,905,000 last year.

"This is very close to the all-time high reached in March," says Steve Hipple, an economist at the BLS. "It really took off last fall."

According to a June survey by Towers Perrin, a consulting firm in Stanford, Conn., 17 percent of nearly 700 human resources professionals said their companies either had acted or planned to furlough workers in the next 12 to 18 months. Another 23 percent were considering it.

"This is a significant uptick," says Ravin Jesuthasan, Chicago-based managing principal at Towers. "Until this recession, we never saw furloughs for white-collar workers. Instead, companies used the nuclear option of a reduction in force."

Although furloughs may avoid layoffs, they also have their downside, says Mr. Kahnweiler, pointing to the possibility that some employees can become unmotivated and may feel betrayed. "It can be a good way to fuel distrust with management." Kahnweiler is facing a furlough as a state employee.

On the positive side, he says, the fact all the employees are suffering together may be a unifying factor.

"If we're all in tough times, we put petty differences aside," he says.

For companies, furloughs are appealing, says Mr. Jesuthasan, because no cost is associated with a furlough compared with a layoff, and they result in less workforce disruption.

"Companies recognize [that] if they can preserve the flexibility and hang on to the talent, they are better off when the economy recovers," he says.

Unions have a mixed view of furloughs, which they generally view as a last resort. "In some ways it has turned into a necessary evil," says Steve Kreisberg, director of collective bargaining for the American Federation of State, County and Municipal Employees (AFSCME). "Within a limit it is tolerable."

In the case of the states, some furloughs may be counterproductive, argues Jim Zamora, a spokesman for Service Employees International Union (SEIU) Local 1000 in California. For example, he says, furloughing the people who collect and audit state taxes will cost the state $550 million.

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