The lockdowns introduced to stem the flow of Covid were usually accompanied by furlough programs that were designed to prevent unemployment from soaring by paying people to stay at home. They were typically the biggest labor market intervention ever seen.

Research from INSEAD explored what benefits firms derived from taking advantage of such schemes and ensuring that workers remained attached to them, even as they had to pay a portion of their salary to do so.

Maintaining ties

They analyzed the situation in Denmark, where the state would pay 75% of workers’ wages, up to a maximum of 30 Danish krone per month. The alternative would be to let workers go, which would require the usual severance pay, which could be several months, especially for white-collar workers.

This made it often more cost-effective to retain white-collar workers, but the same should not have been said for blue-collar workers. That wasn’t what transpired, however, as companies usually chose to retain those workers instead of firing them.

Keeping workers on via the furlough scheme also helped businesses, with those who did so more likely to survive than those who did not. This also meant that firms utilizing the furlough scheme also saw higher sales and employment growth when the economy opened up again.

Smoother recoveries

When we compare how Denmark and the United States handled their job policies during the pandemic, we see that Denmark did better at getting people back to work. In Denmark, companies could quickly bring back workers when things got better.

In the United States, a lot of people lost their jobs because they thought they’d get hired back later by their old employers. But in Denmark, the rules made sure people stayed connected to their old jobs more directly.

This shows us that workers, even those with lower-paying jobs, aren’t as replaceable as some people think. Once they’re not working for a company anymore, it’s hard to know if they’ll come back or if there will be good replacements. And when workers leave, the company loses their experience and knowledge.

As The Economist pointed out in 2021, it’s much easier to lose jobs than to create them. Firing someone takes just a few minutes, but finding, interviewing, and hiring a new person takes a lot of time and effort.

This is something companies should remember, especially when there are big disruptions like climate and health crises in the future.