Furloughs will not solve California budget crisis

The question of whether it’s better to share the pain of state budget reductions through furloughs or go cold turkey with layoffs will soon be in the hands of California’s highest courts.  But for the lives of hundreds of thousands of state workers, it’s more than just a legal matter.  Some California employees have seen their salaries decreased by as much as 15 percent because of furloughs.  And for many of them, it is a breach of an unwritten agreement (sometimes called a psychological contract) between employer and employee.

There’s little doubt that furloughs feel like a better option to most managers who don’t like letting employees go.  But the Wall Street Journal argued in an April 2009 article that furloughs aren’t always the best choice.  Mandatory furloughs can drive away top performers, while encouraging mediocre workers to stay, according to the article. “Everyone’s not important,” says John Sullivan, a management professor at San Francisco State University and adviser to several Silicon Valley companies. “Furloughs will not affect Homer Simpson. Tiger Woods is who you are going to lose.”

Layoffs may be the more logical option if financial problems are intransigent.  Notes Satish Deshpande, a management professor at Western Michigan University’s Haworth College of Business, “If you don’t see a light at the end of the tunnel, it just makes sense to lay off” less-productive workers.

Furloughs punish workers across the board, thus obscuring individual performance – whether good or bad.  Layoffs usually involve force-ranking employees so that only weak performers depart.  As a result, layoffs can strengthen an organization by removing the dead wood.  Furloughs are a constant irritant for all employees, and can demoralize the work force.  Laid off employees aren’t going to be coming into work each day griping about their lowered salaries.  As long as an organization has treated departing employees fairly, and has communicated openly with the remaining workforce, layoffs will not necessarily create a sense of doom-and-gloom and may even result in greater esprit-de-corps. 

The blog site Funny Business describes furloughs as “employee purgatory,” and notes that “because employees lose pay but can’t claim unemployment benefits, furloughs cause a great deal of financial stress.“  Furloughs for California state workers have also had an air of instability about them – first, one day per quarter, then two days, etc.  How can a family be expected to plan its finances when salaries are moving targets?

The point is that no matter how good an idea furloughing may appear from a distance, by the time it reaches the level of individual workers and their households it no longer feels either kind or rational.  That’s not to say that many employees and managers still consider furloughs “the lesser of two evils” compared to layoffs.  But it seems like this “death by a thousand cuts” technique causes more pain for a much longer time than the swift, sure strike of layoffs.