Lessons Learned: Maximizing the Potential of Work-Sharing in the United States

The Great Recession that took hold in 2008 forced thousands of American employers to confront difficult decisions in order to keep their businesses afloat. Many companies were compelled for the first time to consider laying off employees as a cost-cutting strategy. Fortunately, in about a third of states, employers facing uncertain financial futures were able to access an alternative to layoffs, known as work-sharing.

Work-sharing, or short-time compensation (STC),¹ is a form of unemployment insurance (UI) that gives employers the option of reducing employees’ hours instead of cutting their workforce during a business slowdown. For example, a business may determine it needs to reduce personnel costs by laying off five employees until business improves. Under work-sharing, the employer could instead reduce the hours of 25 employees by 20 percent, and those workers would receive a pro-rated UI payment for their one day per week of unemployment, while maintaining any existing health and retirement benefits. By opting for work-sharing, the business is able to operate during a downturn without losing valued employees and is better positioned to ramp back up when economic conditions improve.

Work-sharing has never been utilized as much in the United States as in other industrialized nations in Europe. But the American experience since 2008 has demonstrated that work-sharing can be a critical item in an employer’s human-resources toolkit for dealing with temporary declines in demand for products or services. For states, work-sharing can be a key component of an economic policy that discourages the use of layoffs and instead encourages the retention of employees through the ebb and flow of business cycles. Using data from the U.S. Department of Labor, the Center for Economic and Policy Research estimates that from 2008 to 2013, more than half a million jobs were saved by employers using work-sharing as an alternative to layoffs.² A growing consensus of economists has identified work-sharing as an important means to preventing long-term unemployment and/or mitigating its corresponding negative consequences on the economy. (See “Broad Economic Support for Work-Sharing” on page 15.)³

Interest in work-sharing has increased dramatically in the past five years. Eleven states have passed work-sharing laws, bringing the total to 28 states.⁴ Congress passed federal legislation in 2012 that set national program standards and offered federal grants to states for implementing new programs, improving the operational efficiency of existing programs, and promoting enrollment and marketing of work-sharing to employers and workers.⁵ Twenty-six states have passed conforming state legislation that will enable them to apply for these grants by the current deadline of December 31, 2014. (See Figure 1 for information about available grant dollars by state.)

Work-sharing has the potential to dramatically re-shape the ways in which employers respond to business contractions. In an economy in which job-losers face a much higher probability of prolonged joblessness and must often take substantial pay cuts when they find new jobs, states should be promoting layoff prevention as smart economic policy. Employers should be provided the option of using the unemployment insurance costs they would otherwise incur in an alternative way that enables them to temporarily reduce hours and save workers’ jobs.

The purpose of this paper is to provide states with recommendations for using federal grants to build, improve, and promote work-sharing programs in a way that will increase interest and participation from employers facing temporary economic downturns. The paper begins with an examination of the program’s relatively low U.S. take-up rate (compared to other countries) and variation between states, and highlights some factors identified by researchers as having either promoted or inhibited usage of work-sharing.

The remainder of the paper makes recommendations to states for improving program effectiveness and increasing promotion and enrollment. These recommendations are based largely on the best practices and survey responses of those states that have been most successful in increasing work-sharing take-up.⁶

Recommendations for a Robust Work-Sharing Program Improving Work-Sharing Program Efficiency and Effectiveness:

1. Invest in automation upgrades that integrate work-sharing with existing UI systems. Applications should provide employers with maximum flexibility to make changes.
2. Employ a work-sharing coordinator or manager.
3. Dedicate staff resources to ensure prompt processing of employer applications.
4. Streamline weekly claim-filing process.
5. Leverage work-sharing with classroom-type training to ensure employees acquire skills required by operational shifts.
6. Improve tracking of employers and participants, and generate metrics that will inform decisions about how best to target work-sharing outreach.
7. Recognize good-faith efforts of businesses trying to navigate uncertain
   conditions by extending work-sharing plans up to one year.

Promoting and Marketing Work-Sharing Programs:

1. The USDOL work-sharing website should be the first stop for state administrators seeking to increase employer participation.
2. The states that have been most successful in marketing work-sharing have websites with clear explanations of the program and how to apply.
3. Business interest in the work-sharing program has spiked in states where there has been well-publicized support and endorsement from the state’s executive administration, especially the governor.
4. Partner with business groups and economic development agencies.
5. Promote work-sharing through other employer communications, including routine UI communications.
6. Promote work-sharing as a layoff-aversion tool through the state’s rapid-response system.
7. Conduct industry research to identify employers that may derive some value from work-sharing at a future date.