By Shrey Agarwal, Ranie Lin and Maddy Scannell
Research Interns, McNair Center for Entrepreneurship and Economic Growth
In the past month, Google searches for “what does furlough mean?” have spiked 5000%.[1] Furloughed workers are those who are temporarily removed from work without pay; they are not laid off and may return to employment whenever the pandemic ends. Companies have used furloughs in economic downturns as an alternative to layoffs, because they allow workers to return to work on short notice as the economy recovers. Although fewer than 1% of employees were furloughed in the Great Recession of 2007-2009, the coronavirus pandemic of 2020 has triggered a record number of furloughs.[2] Large companies including Disney and Best Buy have furloughed thousands of workers.[3]
Under the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act, workers who are either laid off or furloughed are eligible for unemployment benefits. These benefits include state-administered unemployment benefits based on previous earnings, along with an additional $600 per week for up to four months until July 31.[4] To qualify for these enhanced unemployment benefits, workers must either already qualify for their state’s unemployment insurance or qualify under the Pandemic Unemployment Assistance program, which expands eligibility for independent contractors, self-employed workers, and others who may otherwise be left out of their state’s benefit program.[5]
Between mid-March and mid-April, approximately 22 million Americans filed unemployment claims, leading to crashed servers and backlogs throughout many states’ software systems.[6] There are some concerns that the benefit provisions of the CARES Act may work against the Paycheck Protection Program’s (PPP) attempts to keep employees on the payroll. Indeed, some congressional lawmakers raised such objections to the CARES Act in March, fearing that it would incentivize employers to furlough or lay off workers.[7] This concern has been heightened now that funding for the PPP has been exhausted.
Furloughed workers are eligible for unemployment compensation, but employers are not required to offer them other benefits, although some companies have promised to maintain health coverage. Meanwhile, the health effects of furloughs are not fully known. A recent Qualtrics survey of workers in the United States, Great Britain and other countries found that 67% of furloughed workers reported a decline in their mental health – a higher rate than the 48.5% of laid off workers.[8] This pattern may be due to the inherent uncertainty of being on furlough. Although not officially laid off, as many as 20% of furloughed workers say they do not expect to ever get their job back.[9]
Even as temporarily shuttered businesses prepare to re-open in some form, many laid off or furloughed employees are choosing not to go back to work – at least not for a while. The enhanced unemployment compensation provided by the CARES Act – $600 per week on top of state benefits – means that many workers can make more money staying unemployed than they would working.[10] “When we asked our employees to come back, almost all said, ‘No thanks’,” one restaurateur observed. “If they return to work, they’ll have to take a pay cut.”[11]
Compounding the economic disincentive is uncertainty about the health risks of returning to retail workplaces. As one restaurant industry executive recently noted, “There are already cases appearing where people who are rehired from furlough are declining the offer: why go back to work to make less and be less safe?”[12] The net result is that even as economic demand returns, may businesses will not be able re-open to their full capacity, making broad recovery in the wake of the pandemic even more challenging.
References
[1] “Your boss said, ‘You’re furloughed.’ What does that mean exactly?” CNBC, April 17, 2020, https://www.cnbc.com/2020/04/17/heres-what-you-need-to-know-about-being-furloughed.html.
[2] Ibid.
[3] Ibid.
[4] “Hundreds of thousands of workers have recently been furloughed – here’s exactly what that means,” CNBC, April 3, 2020, https://www.cnbc.com/2020/04/03/what-happens-if-youre-furloughed-during-the-coronavirus-pandemic.html.
[5] “The $600 Question: Which Furloughed or Laid Off Employees Are Eligible for Enhanced Unemployment Benefits Under the CARES Act?” JDSupra.com, April 5, 2020, https://www.jdsupra.com/legalnews/the-600-question-which-furloughed-or-89325/.
[6] “Self-Employed And Gig Workers Face Long Waits For Coronavirus Relief Checks,” NPR, April 17, 2020, “https://www.npr.org/2020/04/17/836670935/self-employed-and-gig-workers-face-long-waits-for-coronavirus-relief-checks.
[7] “Handful of GOP senators threaten to delay Senate coronavirus bill over unemployment payments,” NBC News, March 25, 2020, https://www.nbcnews.com/politics/congress/handful-gop-senators-threaten-delay-senate-coronavirus-bill-over-drafting-n1168766.
[8] “Furlough might be the unhappiest state for workers,”Quartz at Work, April 17, 2020, https://qz.com/work/1838537/furloughed-workers-are-less-happy-than-those-laid-off-during-coronavirus/.
[9] “Your boss said…” CNBC, supra n.1.
[10] “She got a forgivable loan. Her employees hate her for it,” CNBC, April 22, 2020, https://www.cnbc.com/2020/04/22/she-got-a-paycheck-protection-loan-her-employees-hate-her-for-it.html.
[11] “Our Restaurants Can’t Reopen Until August,” The Wall Street Journal, April 21, 2020, https://www.wsj.com/articles/our-restaurants-cant-reopen-until-august-11587504885.
[12] “Restaurant leader offers 3 solutions to CARES Act problems,” FastCasual.com, April 21, 2020, https://www.fastcasual.com/blogs/3-solutions-to-cares-act-problems/.