WASHINGTON — As job losses continue to slow the nation's economic recovery, labor experts and economists are urging Congress and the Obama administration to boost funding for a little-known program that 17 states are using to avert layoffs and keep workers in their jobs.
Mass layoffs of 50 or more employees claimed 278,000 jobs in the third quarter alone, according to new government data. All the laid-off workers were idled for at least a month and only one-third of their employers expected any of them to be recalled.
In the face of continuing business slowdowns, however, thousands of employers are forgoing layoffs and taking advantage of state "work-sharing" programs in which they cut the hours of full-time workers, who then recoup a portion of their lost wages — usually 50 to 60 percent — from unemployment insurance benefits.
The rules vary by state, but work sharing typically helps reimburse employees for wage reductions ranging from 10 to 60 percent.
For example, an employer that needs to cut 20 percent of its full-time work force could do so through layoffs. If those laid-off workers earned an average of $500 a week, they probably could expect roughly $250 a week in unemployment benefits.
However, if instead of layoffs those workers' hours were cut by 20 percent through the work-sharing program, they'd each earn $400 a week. They'd also be eligible for the program's jobless benefits, which would make up about half of that $100 wage cut, or $50. With this approach, the worker's earnings would be roughly $450 a week, a 10 percent cut instead of a 50 percent cut.
Employees like the program, which is sometimes called "short-time compensation," because the wage reductions are absorbed equally among workers, avoiding the stress and income loss of layoffs. Employers like it because they can reduce payroll and retain experienced workers and don't have to pay to recruit, hire and train new workers when the economy improves.
State governments like work sharing because participants receive less in cash benefits than laid-off workers do, easing the drain on state unemployment funds, which have been hard hit during the recession.
Streich Brothers Inc., a machine and fabrication shop in Tacoma, Wash., has used the program for nearly four years. Thirty-six of its 40 employees are enrolled.
After eliminating six positions this year, company President Christine Fisher said the work-sharing program helped her avoid at least four temporary layoffs by adjusting the hours of her machinists and welders.
"The flexibility is what's good for us," Fisher said. "It allows me to fluctuate and have a certain amount of workers here all the time, every day. One week they may be down four hours, and the next week I may only need them to work three days."
Steve Barry, a union welder at the company for nearly 20 years, said he sometimes lost 16 to 24 hours a week in the program, but unemployment benefits make up more than half of his lost earnings. Barry said he liked work sharing because all employees shared the benefits, and he was more financially able to handle the lost hours than younger workers were.
"If I want to take a little time off and give a guy below me with less seniority a chance to work, and he needs it worse than I do, then it works out great for all of us," Barry said.
Work-sharing programs are available in Arizona, Arkansas, California, Connecticut, Florida, Iowa, Kansas, New York state, Maryland, Massachusetts, Minnesota, Missouri, Oregon, Rhode Island, Texas, Vermont and Washington state. Their popularity has skyrocketed since the economy tanked in December 2007.
In California, which established the nation's first work-sharing program in 1978, nearly 183,000 workers were enrolled through the first nine months of the year, compared with a little more than 80,000 for all of last year.
The nation's second-largest work-sharing program, in Washington state, has a record enrollment of more than 2,500 businesses and more than 50,000 workers who filed claims this year. The program already has paid out more than $31 million in unemployment benefits this year, compared with $4 million in 2008.
In New York, more than 1,800 companies have enrolled this year, compared with 483 last year. The increase has helped save an estimated 10,500 jobs through the first eight months of the year, more than two-and-a-half times as many as last year.
That surge in participation has convinced many that it's time to take work sharing national.
"It should be an option in every state," said Neil Ridley, a senior policy analyst at the Center for Law and Social Policy, a liberal research center in Washington, D. C. "It doesn't work in every situation, but it should be an option that's on the table for employers and workers."
At the New Buffalo Shirt Factory in Clarence, N.Y., all the company's 120 hourly workers are in the program. Employee retention is the biggest benefit, said Pam Thayer, the company's human resources director.
"My employees know that if they only work four days a week for a month or two, they know they'll get that one day of unemployment, so they don't have go out and look for another job, worried that, 'I don't have a steady income. I need something I can depend on.' This provides them with that," Thayer said.
The lack of work-sharing programs in other states could reflect confusion about how to comply with the federal laws that govern the programs, said Richard Hobbie, the head of the National Association of State Workforce Agencies.
After originating in California, work sharing operated as a temporary national program in the early 1980s before federal laws adopted in the early 1990s allowed states to establish their own programs.
Work-sharing programs require union consent when employees are covered by collective bargaining agreements. Some states, such as Washington, require that health benefits be provided to all employees who participate.
Fisher of Streich Brothers in Tacoma said the added cost was a drawback, particularly when employees weren't working 40-hour schedules.
The Center for Law and Social Policy wants the Obama administration to shore up any legal questions surrounding the federal law and provide technical assistance and financing to expand work-sharing programs.
In congressional testimony last month before Congress' Joint Economic Committee, Mark Zandi, the chief economist of Moody's Economy.com, urged Congress and the Obama administration to provide $2 billion in seed money to establish work-sharing programs nationwide next year.
An economic adviser to Arizona Sen. John McCain's 2008 Republican presidential campaign, Zandi estimated that every dollar spent to fund work-sharing programs would result in a $1.69 increase in the gross domestic product the following year.
"Like the temporary extension of unemployment insurance benefits, work share has a high bang for the buck, as it provides financial help to distressed workers, who are likely to quickly spend any aid they receive," Zandi said in written testimony.
To help ease the strain on state unemployment-insurance funds, Sen. Jack Reed, D-R.I., introduced legislation in August that for two years would finance all work-sharing benefits paid to employees for up to 26 weeks. The Senate Committee on Finance is considering Reed's "Keep Americans Working Act" (S. 1646).
Senate Democrats are crafting a job-creation bill, but it's unclear whether it would beef up funding for work-sharing programs.
The White House didn't respond to a request for comment about the programs, but in his inaugural address, President Barack Obama said: "It is the kindness to take in a stranger when the levees break, the selflessness of workers who would rather cut their hours than see a friend lose their job, which sees us through our darkest hours."
Like regular unemployment insurance, work-sharing benefits are drawn from the state unemployment insurance trust funds and from the employers' unemployment reserve accounts. The benefits paid to workers count against their unemployment insurance accounts as well.
Douglas Holmes, the president of the National Foundation for Unemployment Compensation and Workers' Compensation, said that his organization hadn't taken a position on work sharing. However, he said that some states' restrictions — such as maintaining employee health benefits — could limit employers' flexibility to cut costs under the program. He also said the programs were complicated to administer.
Thayer of the New Buffalo Shirt Factory said the added paperwork for all her employees took 30 to 45 minutes a week.
"But I don't find it a real burden," she said. "Investing 45 minutes to retain my employees and help them out financially is worth it."
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