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Furloughs vs terminations: when vocabulary matters…

We all heard the media repeat that the US economy had destroyed almost 21 mln non-farm jobs between March and April. While this number is the ugliest we have seen in decades (to such an extent that the IMF considers the crisis as the worst since 1929), we believe that it might hide good news.

When staff cuts were announced in the last two months, we noted that most companies (especially the very large employers, such as retail or hospitality chains) were talking about furloughs, not layoffs or terminations. An analysis by RetailDive shows that, out of 67 retailers who communicated on the matter, 41 furloughed their associates while only nine laid them off, and that’s where vocabulary matters. A furlough is essentially a temporary layoff. It boosts jobless statistics and, although details may vary from one State or one company to another, it allows people to apply for unemployment benefits or the current Covid-related help plans. However, the employment contract is not broken: in most cases, the company keeps paying for health benefits and 401(k) pension contributions. And to us, there is only one reason why US companies would bother spending that money, at a time when cash preservation is key and US managers are known for their responsive way of adjusting to circumstances : they want to secure the relationship so they can re-hire associates swiftly as and when the recovery materializes.

This point is a major difference with the past, standard economic slowdowns, and, along with the relative resilience of the ISM indices (compared to other PMIs elsewhere), it is a strong sign of hope. Of course, a significant percentage of all furloughed employees will not get their job back but, judging from companies’ current mindset, many will.

 

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