This is an idea that other countries have used in past downturns to far greater effect than the United States. State and federal officials should act now to ramp up this option here. Twenty-six states covering about 70 percent of the U.S. workforce already have formal programs to provide financial help to employers who embrace shared-work policies; those states need to do more to make employers aware of the option. And states that don’t yet have formal shared-work programs can and should put them in place quickly.
Here’s how work-sharing, or “short-time compensation” programs work.
Employers experiencing a temporary reduction in business agree to cut employees’ hours instead of laying off workers entirely. Employees on reduced hours receive unemployment benefits in proportion to the reduction in their hours. Businesses benefit by retaining valued employees and avoiding recruitment and training costs when economic conditions return to normal. Workers benefit by retaining most of their income and access to health insurance — a critical factor in a public health-triggered economic crisis like this one.
By helping to keep people in their jobs, work-share programs mitigate unemployment. And short-time compensation benefits are well targeted, reaching exactly the people who are suffering a drop in earnings and are likely to need the money the most. In this sense, they are better targeted and more likely to provide direct economic stimulus than cutting payroll taxes or sending checks to everyone.
In short, shared-work programs are specifically designed to help businesses and workers—and their communities—get through temporary economic disruptions like those caused by COVID-19.
Business surveys show that employers using shared-compensation programs are overwhelmingly very satisfied with them. The problem is that, even in states with a short-term compensation program, most businesses don’t know about the option. During the Great Recession—a period when shared work could have been helpful to many businesses—relatively few employers operating in states with shared-work programs made use of them. In response, the Middle Class Tax Relief and Job Creation Act of 2012 included provisions to bolster use. Under the law, the federal government funded state marketing to raise employer awareness about the program and reimbursed states’ short-time compensation costs for three years.
Our research shows that even modest efforts to advertise short-time compensation programs can significantly raise employer awareness and use. In large demonstration projects done in cooperation with Oregon and Iowa, we found that low-key advertising campaigns raised employer awareness of the shared-work option by 15 to 30 percentage points. In Oregon, these efforts increased employer participation in work-share plans by 50 to 100 percent. These demonstrations were run during an economic expansion; Outreach should be even more effective during a slowdown—like the one we are currently experiencing.
What should states and the federal government do now to ensure that employers can and will implement work-sharing?
First, states with short-time compensation options should do more to get the word out to employers. Public service announcements, mailings and targeted outreach in industries where sales are especially hard-hit by the coronavirus outbreak can be effective ways to quickly reach businesses that might benefit from the program. Federal subsidies could help to spur such outreach.
Second, the federal government should subsidize states’ short-time compensation programs during the COVID-19 crisis. Under existing law, employers’ unemployment insurance tax rates are tied to the past benefits paid to their workers. This means that many employers’ unemployment insurance tax rates will increase if they lay off workers or use work-share programs. Congress should pass legislation providing reimbursement to states for the costs of work-share benefits paid during the current crisis and stipulate that the tax rates of employers who set up short-time compensation plans will not go up. Some employers might choose to reduce employee hours instead of laying off people regardless, but unless they participate in a work-share program, their employees will not have access to prorated unemployment insurance benefits. Removing the tax consequences of participation in work share should increase employer use of this beneficial program that gets money to people who need it.
Third, states without a short-time compensation option should move quickly to adopt it as part of their unemployment insurance system. The current crisis—which we hope will be relatively short-lived—is a perfect example of the circumstances in which short-time compensation can be most helpful to businesses, workers and communities. It’s better for workers and for their communities if temporary downturns don’t turn into permanent job loss. Every state in the country needs this option.
Short-time compensation is a crisis-mitigation tool we already have in our arsenal to fight this pandemic’s economic fallout. Other countries already are taking steps to encourage the use of shared work during this crisis. Federal and state decision-makers need to act quickly to make it available throughout the United States. The health of our population — and our economy — may depend on it.