The April 13 Wall Street Journal exploded with news about the impact of the economy on jobs which for the first time included bad news about health care. Major articles on health care job losses and adverse nursing employment trends provide concrete reasons for health care leaders to seriously consider contingency strategies for downsizing should these trends expand. This blog has previously addressed possible preemptive recession strategies in its Leadership in a Recession series. While we don't comment on articles specifically about health care, today's Journal contained a discussion of personnel reduction strategies in industry. Weighing Furlough vs. Layoff, by Cari Tuna, addresses one aspect of the problem that is worth a read by health care leaders.
How Much, How Fast, How Deep, How To?
Ms. Tuna discusses payroll reduction strategies at several companies - those which use layoffs, furloughs, and a mixed approach - and identifies several factors that influence each. For health care leaders it seems to me that it boils down to estimating:
- how deep the economic slide will go
- how long it will last
- how much (not if) it will impact health care
- the degree of specialization or training of the talent to be eliminated
- the difficulty and cost of replacing that talent; and
- the relative impact on morale of each strategy
In industry, at least, greater depth and length of the slide would appear to favor layoffs; relative brevity and shallowness to favor furloughs. For health care this thinking seems to make sense. The important calculus is the relative risk and benefits of downsizing temporarily vs. semi-permanently.
Remember to Consider ALL the Costs
Assume we expect there to be a recovery and that health care will be a relatively early recovering industry (neither of which is a sure thing). And assume that health care leaders are considering what to do about relatively specialized workers (technicians, nurses, physicians, managers, directors, etc.). The calculus is further refined into considerations of replacement difficulty, severance and replacement (or rebuilding) costs, opportunities lost to key current or planned programs, and - don't forget - morale. These costs can be substantial so Tuna warns us to measure all the costs, not just salary savings, when downsizing.
Given the above, a specialized elective procedure or diagnostic or outreach program that is relatively expendable in a downturn may also be one that will be difficult to replicate during economic recovery without key personnel or teams. That being the case, a furlough program may benefit the organization, individuals, and overall morale. In addition, according to the article, under some conditions furloughed workers may retain both benefits and eligibility for unemployment benefits.
Unskilled workers, sadly, may be more "expendable" in lean times and more easily "replaceable" during recovery. Which might be part of a hybrid or mixed furlough-layoff program. In either case, local market and competitive conditions may dictate greater retention efforts even if business is slow.
Of Course It's Not So SImple
While the above seems like a great algorithmic approach, it may not be so easy. There is plenty of controversy about whether a quick layoff is better than a slow and painful furlough process: " 'Furloughs also can hurt morale and productivity by prolonging painful cost-cutting,' says Yale University economics professor Truman Bewley. Layoffs are 'hard on the people that leave, but of course they're gone,' he says. 'You get the misery out the door.' "
So while there's no great answer to the fragility of economic conditions, one thing is for sure. Acting reflexively in the absence of a coherent short and long term strategy that considers benefits and liabilities comprehensively is probably a bad idea. And while nobody knows how to do this right, there is plenty of industry experience out there considering the months of economic slowdown that have preceded the impact on health care. During these months, "they" (non health care industries) have learned a few tough lessons from which "we" (health care leaders) can benefit .
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