The EconomistApril 4th 2020 Business 59I
n mid-februaryHilton, a hotelier, and its employees had
something to celebrate. For the second year running the com-
pany came top in Fortunemagazine’s list of best American compa-
nies to work for. The perks provided to its 62,000 direct employees
in America included extended parental leave, Under Armour-
branded uniforms and facilities to let travelling staff ship breast
milk home. A mere six weeks later, on March 26th, tens of thou-
sands of those pampered employees were given notice that they
would be thrown out of work because of the covid-19 pandemic.
That was the day weekly jobless claims in America spiked by
1,000% to 3.3m.
The stratospheric surge of Americans seeking unemployment
benefits contrasts with the situation in western Europe. Compa-
nies there are struggling just as hard but many are keeping workers
on the books at reduced pay. That is a familiar story. In times of
economic upheaval, European firms rely extensively on schemes
in which the government picks up part of the wage bill, such as
Germany’s Kurzarbeit, France’s chômage partieland Italy’scassa in-
tegrazione. Traditionally, America has shunned such feather-bed-
ding. From frontier days its labour laws have given employers
leave to cull jobs almost at will. Not for nothing did the country
elect a president whose catchphrase was “You’re fired!”
In the current crisis it may seem fair to ask American firms to
take a more European approach. After all, business activity has col-
lapsed not because of slothful work habits, but because govern-
ments have ordered people to stay at home. This is not a slump that
needs to be fixed with an orgy of creative destruction in the jobs
market. And however deep the downturn, the rebound could be
relatively quick. If so, it makes sense for companies and employ-
ees to maintain ties, so that production can resume briskly when
things improve.
Yet one feature of this crisis in fact makes it all the more impor-
tant to maintain flexible labour practices: the jobs market has bi-
furcated. In industries that bring people together, such as hotels,
airlines, casinos and restaurants, demand for workers has col-
lapsed. Those that provide access to health care (such as hospitals),
staples (supermarkets) or services catering to those stuck at home
(e-commerce) are clamouring for more staff. For all the merits ofEurope’s labour-support programmes, the risk is that they last too
long and dissuade workers from switching to industries where
their help is badly needed.
Already the response of American firms to the jobs crisis is tak-
ing an unfamiliar route. Though many of the small businesses that
provide about half of private-sector employment in America were
quickly forced to let workers go to survive, the government has
stepped in to ease the pain. Its $2trn support programme has tem-
porarily increased unemployment benefits. A $350bn lifeline to
small businesses within the stimulus package encourages them to
cling on to staff if they can.
Some bigger American firms, such as Hilton, its rivals like Hy-
att and Marriott, and retailers such as Macy’s and Gap, are taking a
different tack. Instead of sacking staff, they have announced that
tens of thousands of their employees will be furloughed, which in
America means being put on unpaid leave. Crucially, the fur-
loughed workers get to keep their company health insurance. They
can also, in most cases, claim unemployment benefits. To ease re-
sentments, those who remain in work, including executives, will
suffer pay cuts.
The use of furloughs represents a change from previous
slumps, says Sandra Sucher of Harvard Business School. Common
in Europe during the financial crisis of 2007-09, they were barely
used in America. Since then, however, many American firms who
laid off workers found subsequent rehiring so difficult that they
are loth to suffer the ordeal again, she says.
Another difference with past recessions is the way American
firms are encouraging inactive workers to switch jobs to fill tem-
porary vacancies in other industries. Hilton, for instance, is help-
ing its suspended workers to apply for jobs at e-commerce firms
like Amazon. This may help keep the labour market relatively fluid
at a time of severe stress. (Amid employee absences and increased
orders, some workers at Amazon, for instance, are demanding bet-
ter conditions.) It is also well-suited to the time horizons of the
pandemic. As social-distancing measures recede, some of the dis-
ease-specific demand for labour will ebb, enabling workers to re-
turn to their old jobs.From pulling pints to pulling up potatoes
This is where Europe could learn something from America. Some
industries have far too many workers, whereas others do not have
enough. Airline employees are needed to work in hospitals, and
rural bar staff could helpfully be dragooned into farmwork amid a
shortage of migrant labour. But European countries’ schemes for
subsidising the wages of furloughed workers often do not make it
easy for them to take new jobs, even temporarily, and sometimes
discourage it. As Giuseppe Moscarini of Yale University says, sup-
port for workers should not preclude labour mobility, even if it en-
courages them to maintain ties with their existing employers.
Both American and European labour policies have their pros
and cons. In America rapid shake-outs in jobs markets help good
firms grow and bad firms shrink, promoting dynamism. In Europe
worker protections can reduce the devastating toll on employees
and their families caused by slumps, but can slow the pace of re-
covery. American left-wingers believe that more European-style
treatment of workers is long overdue—and will cheer examples of
companies volunteering to furlough workers rather than fire
them. But if America and Europe want to ensure that hospitals are
staffed, deliveries are made and food is on the table, they must re-
member that flexibility, as well as some security, is essential. 7Schumpeter You’re furloughed!
Should American job-cullers become more European during the current crisis?