Layoffs are all but inevitable in a major recession. But in the midst of the Covid-19 pandemic, there’s been a sharp uptick in the use of work-sharing programs to help soften the blow.
In the US, 27 states have work-sharing programs that offer partial unemployment benefits to people whose hours have been reduced. Employers continue to keep the workers and can avoid the costs of recruiting and retraining when business gets back up to speed, while the workers, whose hours might be reduced anywhere from 10% to 60%, continue to be compensated and receive benefits like health insurance.
Work sharing has never been mainstream, particularly in the US. But the pandemic, and the unprecedented surge in jobless claims it triggered, might change that.
The latest figures from the US Labor Department show that US employers have filed 25,873 work-sharing claims as of March 28, up from 16,452 the week before. The state of Washington received over 2,000 shared work applications, 30 times higher than during the same period last year. In New York, applications have increased 15 fold between the second and third week of March, from 23 to 350. Connecticut has signed up over 480 new companies for shared work in just over a month. Before the pandemic, the number of companies taking part in shared work averaged about 200 per month.
“States that have existing programs—it’s pretty much exploding,” says George Wentworth, senior counsel at the National Employment Law Project. “Then the states that don’t have programs are looking at enacting them.”
The uptake has been even more dramatic elsewhere. Early estimates by OECD labor economist Andrea Garnero find that more than 650,000 companies in Germany have already claimed reduced-hour benefits amid the pandemic; that’s 20 times the largest weekly increase during the 2008 financial crisis. In France, 700,000 new companies have work-share claims for about 8 million workers, representing a third of the country’s private-sector employment, while in Belgium, 1.25 million workers are on shared work.
Work-sharing historically has had a stronger presence in other countries. From 2007 to 2011, only 0.2% of unemployed workers in the US benefitted from work-sharing programs, compared with 16.9% of workers in Italy, 11.3% of workers in Belgium, and 4.1% in Germany, according to the Urban Institute. Czech Republic and Hungary have established programs that also include training.
Germany has embraced the idea of work share, or Kurzarbeit, since the 1950s. The program is flexible—either employers or workers can initiate it. A study from OECD researchers found that pro-rated benefits for workers whose hours get reduced have had a particularly significant impact in Germany and in Japan, where they helped preserve an estimated 200,000 and 400,000 permanent jobs, respectively.
Work-sharing helps lessen the burden on any one worker; it may also better target benefits to people who need them most, as layoffs tend to disproportionately affect younger workers, women, and minorities.
“It’s good for employers because once things pick up, and hopefully that won’t be too far down the road, it’ll be easier for them to ramp back up,” says Katharine Abraham, an economist at the University of Maryland.
Recessions tend to put the value of programs like these in focus; in 2007, only 17 states in the US had work-sharing programs. Another 10 states have established programs since then, and there is reason to believe more will join them. Under the new CARES Act, the US government will provide $100 million for states that enact work-sharing programs and will pay, through the end of 2020, the full cost of the benefits in states that already have work-share laws.
In California, 768 employers have applied for work-sharing benefits so far this year, securing arrangements for nearly 10,000 employees. At the height of the last recession, in 2009 and 2010, there were 21,850 employers on work share in the state, with benefits paid to a total of 356,571 employees in those two years.
Abraham chalks up the relatively slim numbers for US work-sharing programs mainly to a lack of awareness, though she notes some employers may simply find it too costly to maintain full health and pension benefits upfront during a downturn, while to others, filling out an application may just be more cumbersome than asking workers to file for regular unemployment insurance.
Work-sharing has been more common in the manufacturing sector, and research shows that manufacturers in states with work-share programs generally depend more on reductions in hours and less on layoffs compared to non-work-share states.
One potential downside to work-sharing programs is that they may impede natural reallocations of labor from declining sectors to growing ones, says Abraham. But “[i]f you look at the experience in countries that use it heavily, I think it’s evidence that it saved a lot of jobs.”