Heather Kerrigan is a GOVERNING contributor. She pens the monthly Public Workforce column and contributes to the print magazine.E-mail: firstname.lastname@example.org
When the economy hit the skids three years ago, many businesses found themselves desperately trying to hang on to workers. When the housing bubble burst, Comfortex, a window shade manufacturer in upstate New York, felt the pinch. But instead of pink slips for many of its 300 employees, the company reduced employees' weekly hours and pay, and partnered with the state to make up some of the lost wages.
Work-sharing, as it's known, has been popular in Europe for years, but has never really caught on stateside--until now. In 2009, work-share programs saved a record 166,000 jobs in 17 states, including a per-capita best of 6,600 in Rhode Island. The state has one of the nation's highest unemployment rates at 12.5 percent, but it could be much higher if not for the innovative program. In a work-sharing program, private-sector businesses partner with states to reduce their employees' hours rather than undergo layoffs. The program is popular with both employees and employers--the former get to keep their jobs, and the latter maintain a stable work force and don't have to worry about rehiring and retraining costs down the road.
Rhode Island's work-share program began in 1992, more than a decade after California became the first state to implement the program. In Rhode Island's program, a company has various options as to how it will rework hours for employees. Techniques include four eight-hour days per week and part-time schedules, to name a few. The state, in turn, agrees to provide some of the employee's lost wages through unemployment insurance (UI) funds. The employer continues to pay the employee for time worked. The combination means employees still make a portion of their earnings, and the state does not see its unemployment funds further drained. While the time frames attached to how long an employee can remain on a work-sharing program vary by state, they generally are long enough to allow companies to resume full-time operation.
The number of companies participating in Rhode Island has increased dramatically each year. In 2006, 66 companies participated; in 2007, when the first signs of a recession hit, 180 companies partnered with the state. By 2009, that number grew to 661. The program's increasing popularity can be attributed to the state Department of Labor and Training's marketing campaign, which includes reaching out to employers through the Chamber of Commerce and with informational notices. The department also partners with various media organizations to get stories published about businesses that have succeeded with the program. "Those testimonials do more than anything we can do here in terms of outreach because it's got a different level of credibility," says Laura Hart, the department's communications manager.
The department also tracks companies that are laying off employees and asks them if the department can discuss other options, including work-sharing.
"It is an excellent tool for employers because the employer retains a trained worker," says Raymond Filippone, the Department of Labor and Training's assistant director of Income Support. "When the economy improves for that employer, that individual is still there attached to the job, so it's not as if they need to hire new individuals." In effect, companies avoid severance payments and the expense of rehiring and retraining later.
It also creates a better sense of loyalty, Hart says, "because your employees know that you're fighting to keep them; they know they have value, and that's a big moral boost."
Still, 33 states are without a work-share program, and many believe the hindrance stems from the common misconception that these programs create too much paperwork, raise administrative costs or will put further strain on unemployment funds that already are stretched thin.
The Congressional Research Service, however, says these ideas simply are not true. Any impact on states' UI funds is a wash, because the cost of full benefits for laid off employees is similar to the cost of partial benefits for those in a work-share program. Private companies, which already pay into a state's UI trust fund through taxes, are charged higher rates, but they are equivalent to what the company would pay if it had instead laid off employees. As for administrative costs, states using a paper-based application process could see a slight increase in hours needed to process applications; however, because work-sharing participants do not check in weekly with the unemployment department as typical unemployed people do, the resulting administration cost could be about equal. Rhode Island saw no increase in administrative costs--it simply reorganized its staff to ensure that applications and benefits are processed quickly. And as for the UI trust fund, "if there had been layoffs, the drain [on UI] would have been greater," according to Hart. "Work-sharing is fiscally responsible."
Pennsylvania and New Jersey are among seven states currently working through their legislatures to pass work-sharing bills. In both states, the unemployment trust funds have been operating in the red, and supporters say a work-share program could alleviate some of the burden. Colorado, Hawaii, New Hampshire, Ohio and Oklahoma also are looking into work-share programs.
Given the scramble by states and the federal government to maintain and create jobs, Congress has taken notice of the increasing popularity of these types of programs. To encourage more states and employers to join, Sen. Jack Reed of Rhode Island proposed a bill that would provide federal funding for work-share programs and simplify the application rules.
Economists, including Federal Reserve Chairman Ben Bernanke, support increased federal involvement in work-share programs. "Many economists believe that the current U.S. unemployment insurance system is biased toward the use of layoffs because laid off workers are eligible for UI benefits," Bernanke wrote in support of Reed's bill, "while workers whose hours have been reduced because of slack work are not."