Caiyuan Gao, School of Management Fudan University, looks at employee sharing during the pandemic in China – an alternative way to avoid lay-offs during crisis.

It may take you by surprise to learn that Macy’s was planning to cut 3,900 jobs and close 125 stores. 33% of its shopping malls could close by 2021. The problem of how to deal with the tension between companies and their employees has long been under discussion. The 2020 pandemic certainly dragged the problem again into the spotlight. Massive layoffs happening around the globe were claimed to be a necessary act to save the company by some managers, yet did the pandemic really leave us with no option but ruthlessly firing one of the most important assets a company can have?

Reality: Imbalance of labour demand among industries

Many economists hold the belief that unemployment is related to economic growth. According to the Okun’s law, for every 3 percent rise in the rate of economic growth above the economy’s long-term potential growth rate, unemployment would decrease by 1 percent, and vice versa. As the COVID-19 crisis worsened, some employers began to see the contradiction between their disappointing cash flows and idling staff posing a threat to the survival of business. Thus many turned to executing layoffs as a way to cut expenditure.

However, the situation may be different in various industries. According to a report released by China Cuisine Association, during the epidemic in China 78% of catering companies lost almost 100% of their revenue, while 9% of companies lost more than 90% of their revenue. On the other hand, the global disposable face mask market size exceeded a value of USD 74.90 billion in the first quarter of 2020 and is expected to grow at a compound annual growth rate (CAGR) of 53.0% from 2020 to 2027.

The demand of labor surely defers between the catering business and the mask business. Nonetheless, for those who find themselves lucky in this “Black Swan” event, the need for more human resources to meet production demand is also troublesome. So, for either side under the influence of the pandemic, negative or positive, there are problems unresolved.

A member of the sharing economy may save the day

Shared employees, as the term indicates, focuses on “share”. The idea is to “share” the employees in a company whose business is relatively slack with another company who desperately needs more hands. In the first period of the COVID-19 outbreak, a Chinese supermarket chain called Hema first applied “shared employees” in practice to cope with a workforce shortage. Employees borrowed by Hema stayed under their original employment contracts with the lending company — Xibei — but worked for and were paid by Hema. When the contractual job was done, these employees returned to their former employer. Hema was soon followed by other superstores like Suning and JD, who found such a method surprisingly helpful.

In fact, lending or sharing employees in times of turbulence is not entirely new. Similar forms (such as flexible employment, gig economy, borrowed labor, labor dispatch, etc.) have long appeared around the world. Back in the 2000s, the Swiss family business “Victorinox”, which uses the Swiss Army Knife as its iconic product, suffered the biggest crisis since its establishment due to the impact of the “September 11” incident in the United States in 2001. Victorinox then adopted a cross-border “rental” employee model to survive. The model laid a foundation of human resources for the company’s re-emergence after the crisis.

Why shared employees could be the solution

There are definitely good reasons why so many companies took to the sharing practice. And when we look into the mechanism of it, we may find sharing employees to be a win-win solution.

For the borrowing side, it will be much easier and faster to have a large number of workers in place to support operation. Hema quickly gathered a troop of more than 1,200 people to back it up in packing, sorting and delivering and so on, with shared employees from 21 restaurants across over 7 cities. Operational capacity was improved significantly in a short period of time. Additionally, the boost of business might be only temporary for borrowers, so sharing instead of hiring can enable the borrowers more mobility in structuring human resource and reduce long term cost since shared employees are also only temporary.

For the lending side, the return of lending is apparent. Xibei, who was the first to lend employees to Hema, is a restaurant chain with 379 stores in China’s 58 cities. It was hit heavily by the corona virus outbreak and revealed to the media that it could not even last for more than 3 months based on its book cash flow. With the new practice of shared staff, however, Xibei was able to save money on salary expenditure in times of difficulty while retaining the labor relationship with shared staff for future business recovery.

The social benefit is also obvious. Sharing instead of firing means “people working in Xibei would not get fired because the company cares about its employees and is making every effort to save them,” said Guolong Jia, founder of the firm. Thus, along with good reputation, employees’ loyalty could be reinforced.

Nothing is perfect

Since the publication of the first announcement by Hema, professionals from corporate management, human resource management and the legal department have been actively debating over the feasibility of such a lend-and-borrow model.

The first problem is the limitation of industry types. It can be observed that companies who embraced sharing employees are mainly from only five major industries: traditional catering, hotel and tourism, the Internet, advertising, and education, among which the traditional catering and hotel tourism industries participated more in lending while the retail, manufacturing, logistics and distribution industries and other related industries were more of the borrowers. Related shared employees are mainly secondary school-educated and in blue-collar positions, in which low constraint of skills indicates a smooth job transfer. As for those highly distinctive and differentiated companies, it may be difficult to find talents they need in other industries, while concerns about the leak of business secrets refrain them from sharing within industries.

Another heated issue is on the legislation level. Relevant laws and regulations are not yet in place. Current laws and regulations are obviously lagging behind the practice of shared employment by enterprises, resulting in a lack of clear legal basis for enterprise labor relations, the division of rights and responsibilities of the parties, the protection of labor rights, and the evaluation of job titles. As a relatively new form of employment, the shared employee model has natural characteristics of high mobility and instability, which lead to a process of gradual adaptation and recognition.

Failure is painful, but it’s worse never to have tried

Surely, the shared employee model has its imperfections. But it is also a fact that during the COVID-19 epidemic it has brought opportunities and vitality to many companies and employees. The shared employee model inherited the key feature of sharing economy—the optimal allocation of resources. Therefore, in crisis like the pandemic, in which the mismatch of human resources is magnified, the shared employee model might shed new light on the problem and provide new perspective for managers in dealing with the contrast of employee maintenance and company survival during the pandemic crisis. After all, great changes always start with doubts.

Sources:

[1] Britannica, T. Editors of Encyclopaedia (2021, March 23). Arthur M. Okun. Encyclopedia Britannica. https://www.britannica.com/biography/Arthur-M-Okun

[2] Disposable Face Mask Market Size, Share & Trends Analysis Report By Product (Protective, Dust, Non-woven), By Application (Industrial, Personal), By Distribution Channel, And Segment Forecasts, 2020 – 2027. https://www.grandviewresearch.com/industry-analysis/disposable-face-masks-market

[3] What exactly is shared employee? —Origin, connotation, framework and trend. Business Research (06) ,1-13. doi:10.13902/j.cnki.syyj.2020.06.001.

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