Hey, Something Good Happened Last Week

February 21st, 2012 at 3:29 pm

…and I wanted to make sure folks were aware of it.

The bill that extended the payroll tax break and Unemployment Insurance (UI) contains a provision for something called work sharing, a variation on UI that a) makes a lot of sense, and b) played a major role in holding down German unemployment during the recession (their current jobless rate is in the mid-fives right now, compared to ours in the mid-eights).

Work sharing, also called short-time compensation, is a way to use the UI system to avoid layoffs, or more accurately, dilute the pain of layoffs by substituting reduced hours across a group of workers as an alternative to laying people off.  UI benefits then kick in to help offset part of the lost pay.

For example, suppose in the midst of recession, depressed demand leads an employer to consider laying off a fifth of her workforce.  Under work sharing, she could cut everyone’s hours by 20%–or move to a four-day week—and not layoff anyone.  Then each affected employee earns 80% of their pay and 20% of the weekly UI benefit for which they’re eligible (workers with health benefits maintain full coverage).

Over 20 states already have work sharing programs.  Employers often like how the flexibility enables them to react to dips in demand without losing valuable workers, and workers can avoid layoff, keep working and drawing a paycheck.  True, relatively to traditional UI, most workers in examples like that above who would have been held harmless take a small hit to keep others on the job.  But the anecdotal evidence I’ve heard from the states suggest folks are generally OK with that.

Learn more about it here.

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8 comments in reply to "Hey, Something Good Happened Last Week"

  1. Sandwichman says:

    Good to hear. Thanks.

  2. D. C. Sessions says:

    My employer has done that — no layoffs in the last five years. We rotated the furloughs to let people take some UI, and when business got better we went full-throttle while our competition was making plans to ramp production up. Frankly, we ate their lunch.

    Our management have become serious capital-B Believers in sharing, and the troops are mostly very pleased at how it’s worked out. I’m old enough and cynical enough to be delighted at a modern example of a company that takes “loyalty” as a two-way street.

  3. Fred Donaldson says:

    This is more corporate welfare if the program uses taxpayer money to fund lowered hours – and most likely just as much production. Without safeguards this is just another way for taxpayers to give employers a subsidy – this time for cutting hours.

    One has to imagine what the U.S. would be like without unemployment insurance – workers rising up in anger against companies that laid them off, placing the blame where it belongs, on business, not government.

    • D. C. Sessions says:

      This is more corporate welfare if the program uses taxpayer money to fund lowered hours – and most likely just as much production.

      Not in our case. Demand was way down, inventory was way up, and we needed to cut production. So we did. We’d have been happy to put all of the production staff on short hours, but that would have cut their income without qualifying them for UI. Instead, we did rolling furloughs — they got UI in chunks. (The unaffected employees took pay cuts and cancelled bonuses [1] and also kicked a fair bit of their own money into a relief fund for the furloughed workers.)

      Letting them take short hours and have continuous work while drawing partial UI would have keep their skills up better, even though we treated our people far better than our competition did. We’d be giving up a modest competitive advantage if the competition had an incentive to treat their people better, but I can live with that.

      [1] Which the Board made up retroactively, BTW.

  4. Keith Elmore says:

    I am having a discussion with a friend about the effects of minimum wage. He cited studies done by Walter Williams and Sowell who say that minimum wage has a negative effect on employment, especially on minorities. How would you respond to these studies?

  5. perplexed says:

    -“True, relatively to traditional UI, most workers in examples like that above who would have been held harmless take a small hit to keep others on the job.”

    Once you deny the rights of the majority to impose the entire cost of an output gap on the minority of unemployed workers by closing the so called “market” to them, all kinds of more ethical possibilities open up. Where are the courts? Are they now just subsidiaries of major corporations? Why is labor exempted from anti-trust laws? It is the “product” provided by most Americans. This is not something that should have to gain the “approval” of the majority to forgo an advantage they gain by imposing costs on a powerless minority any more than the right to vote of some minority should have to gain the approval of a wider majority. Access to any market should be right of citizenship, and victims of the denial of that right should be compensated. There are many ways to address the problems of falling wages and deflation; denying access to the market for a minority of workers without full compensation should not be one of them. We need to stop obfuscating the issue by calling something a market that is closed to some bidders. Either it is a market, in which case it’s open to all qualified bidders, or its something else. This ruse has gone on way too long at much too high a cost. Its time to move beyond this “loser liberalism” approach and start demanding that government actually enforces our rights.

    The “people” that should be buying “insurance” are those that participate in this market manipulation, not their victims.

  6. martin morand says:

    It is Great that Jared has Begun to educate us. It is tragic that we have not been better informed by union leaders about “Short-Time Compensation: A Formula for Worksharing” (see book of same name) which AFL-CIO endorsed in 1980!

    It is Not a “government subsidy” in the sense that usually means — taxpayer funded. It is Merely a redistribution of Unemployment Insurance which has been Prefunded by employer taxes which, like other “deferred compensation” (e.g. Workers Comp) is part of the cost and product of workers’ labor.

    It has been enthusiastically applauded by unions, workers, employers where used.
    It avoids one of the worst side effects of loss of employment — loss of health care. (The above-cited book contains extended examples of benefits or worksharing for employers, unions, workers and governments.)
    Martin Morand