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 — including Kansas — 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.
A work-sharing program has been in effect in Kansas since 1989, but didn't really take off until the national recession started last year.
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In 2007, only 40 companies in the state participated. By 2008, that had grown to 136.
"That was kind of a record year for us," said Kathy Toelkes, spokeswoman for the Kansas Department of Labor.
But the record was shattered this year with the number of companies participating rising to more than 460 — 11 times the level three years ago.
The state doesn't keep a count of individual participants, but as many 18,000 Kansans could be in work-sharing programs.
How program works
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 hit hard during the recession.
"It's an opportunity for them (employers) to avoid a layoff or avoid a bigger layoff," Toelkes said.
One of Wichita's largest employers, Spirit AeroSystems, turned to work sharing in late 2008 to help the company weather a business slowdown when Machinists went on strike at Boeing, a major Spirit customer.
Most of Spirit's 10,500 employees were put on three-day workweeks from September 2008 to January of this year, but were able to have their income supplemented with unemployment benefits for the two days a week they were idle.
That allowed Spirit to keep its skilled work force together and not risk having it scattered in a mass layoff, said spokesman Ken Evans.
"It was real important to us," he said. "It was nice to have a state program to help with that."
A refinement to the work-sharing program is set to begin in January.
As part of a bill that passed the Legislature this year to extend unemployment benefit eligibility, workers on short workweeks will be able to receive work-sharing benefits longer if they participate in an approved training plan on their off-work days.
The popularity of work sharing 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 2 1/2 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 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."
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.
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 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".
Senate Democrats are crafting a job-creation bill, but it's unclear whether it would beef up funding for work-sharing programs.
Like regular unemployment insurance, work-sharing benefits are drawn from the unemployment insurance trust fund 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.