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Reduced hours, shared work could reduce trauma of mass layoffs

On Wednesday, as effects of the coronavirus pandemic started hitting the U.S. job market, the Senate approved an emergency stimulus package to help businesses avoid mass layoffs. Cornell University economists are available to discuss the package, in particular, the measures taken to control unemployment. They also offer some perspective on what businesses and the government could do to further ease the effects of massive layoffs.

Paul Davis

Assistant Professor of Human Resources

Paul Davis, assistant professor of human resources at Cornell University’s School of Industrial and Labor Relations, says that temporary furloughs, reduced hours and cuts to pay rates can provide employers with cost saving measures that do not permanently reduce headcount.

Davis says:

“Researchers investigating the impact of layoffs on organizational fortunes have generally reported negative post-layoff consequences across a number of outcomes, including stock price and profitability, failing to support arguments that layoffs promote value creation or that layoffs buffer against the economic downturns.

“The impacts of layoffs on their victims are also broadly negative and often traumatic, with research demonstrating links between layoffs and physical and mental health problems, long-term career and income setbacks, and generally negative attitudes about work. As might be expected, the negative consequences of layoffs among their victims tend be intensified for those facing severe financial distress. This finding is especially sobering for individuals who lose their job amid an economic downturn, where the lack of alternative employment opportunities can exacerbate and prolong financial distress.

“Temporary furloughs, reduced hours, and cuts to pay rates can provide employers with cost savings that help them to weather precarious economic conditions without permanently reducing headcount.

“Unfortunately, under each of these employment policy changes, any reduction in employer costs is directly proportional to the income losses suffered by workers. As such, workers often (and understandably) react negatively to these initiatives, especially as they persist over long periods of time. There is another alternative to layoffs, however, that attempts to provide employers with cost savings while also minimizing the negative financial impact on workers. Work sharing (or short-time compensation) programs allow employers to reduce workers’ hours such that two or more individuals ‘share’ a job while also providing the workers with a portion of their lost earnings, paid through their state’s unemployment insurance (UI) programs (which are funded by employer-paid premiums). Because UI programs are administered at the state-level, the specifics surrounding work sharing policies and worker payouts do vary across states, with approximately 20 states not currently offering any work sharing benefits. However, for those states that do allow work sharing, the programs can provide a response to economic hardship that attempts to balance employer and worker outcomes.” 

senior research associate at Cornell’s School of Industrial and Labor Relations

Ian Greer

Senior Research Associate at the School of Industrial and Labor Relations

Ian Greer is a senior research associate at Cornell University’s School of Industrial and Labor Relations where he teaches a course called “The Fight Against Unemployment: Policy and Advocacy.” Greer says that shared work programs, such as the ones championed by Germany during times of economic downturn, may be a way to avoid the trauma of mass layoffs.

Greer says:

“Employers are laying off their employees in large numbers and will likely to continue to do so for some time.

“But many will be looking for alternatives to layoffs to weather the economic downturn. Most people do not know that government can help cover the cost of avoiding layoffs through programs such as New York State’s Shared Work Program.

“The U.S. has a relatively low take-up rate for shared work or short-time working schemes; the model is Germany. But these can help employers to retain workers’ valuable skills and knowledge, workers to avoid the trauma of unemployment, and government to contain spending increases on unemployment insurance and welfare benefits.”

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