Jan. 10 (Bloomberg) -- Some states are adding a new twist to the old concept of unemployment insurance: Paying to keep Americans in their jobs rather than giving them cash when they lose them.
Washington state has subsidized incomes for dental technicians and plumbers while Rhode Island paid factory and health care workers when their employers couldn’t. Almost 460,000 jobs have been saved through such arrangements since 2008, the Labor Department estimates, and federal funding approved last year has more states signing on.
Instead of dismissal notices, employees get a shortened work week, with unemployment benefits partially compensating for lost wages. Popularly known as work sharing, the program holds out the promise of fewer layoffs and less painful economic downturns. For businesses, which get to retain experienced workers, it could mean the difference between success and failure.
“It’s been a godsend,” said Belinda Roberts, co-owner of Blue Crown Dental Arts in Kennewick, Washington, which credits the state’s program with saving the jobs of seven trained technicians. The dental lab signed on to work share in 2010 after orders dropped and now has seven employees on the program. “It’s kept the doors open.”
Work share, also known as layoff aversion or short-time compensation, is part of a broad rethinking of the U.S. safety net for the unemployed. It borrows from decades-old efforts in Japan and Europe, notably Germany’s “Kurzarbeit”, which dates from the 1920s. In 2009, about 3 percent of all German workers were on the program, which saved around 235,000 full-time jobs that year, according to a 2011 report from the Organization for Economic Cooperation and Development.
Rhode Island is among 17 states that have had work-share programs in place for years. Before the recession began in December 2007, they weren’t used widely, in part because states did little to publicize their availability. Even at the program’s peak usage in 2009, work share accounted for only 2 percent of unemployment insurance benefits, according to the Congressional Research Service.
Now chronic long-term unemployment and a pot of federal funding approved by Congress last year have prompted more states to adopt work sharing. Twenty-five states and Washington, D.C., now have versions of the programs. Eleven jurisdictions have collected $92.3 million in U.S. aid so far. West Virginia and Ohio are among states considering plans.
In December, 4.8 million Americans were out of work for six months or more, according to figures from the Labor Department. While down from a record 6.7 million in April 2010, the level still surpasses any peak reached in the aftermath of previous recessions. More than a million people have abandoned the job hunt altogether, a development that Federal Reserve Chairman Ben S. Bernanke has called a “national crisis.”
“The conditions now prevailing in the job market represent an enormous waste of human and economic potential,” Bernanke said in December. That month, the percentage of the jobless who were without work 27 weeks or longer fell below 40 percent for the first time since November 2009.
All sides bear some of the cost. State unemployment trust funds, with aid from the U.S. Labor Department, finance the work sharing. Affected employees get only a portion of their lost wages. Participating businesses must agree to pay workers a minimum number of hours a week and run the risk of higher unemployment insurance taxes if they use the program long term.
This month, Michigan will be the first state to give businesses a free trial: Companies can use work sharing with no risk of tax penalty as long as federal money is available. As with traditional unemployment, states cap the benefits workers can receive.
“It’s a good way in the short run to reduce the number of layoffs in the economy,” said Wayne Vroman, a senior fellow at the Urban Institute, a Washington-based policy group. “It’s not a complete panacea,” he said. “Very often when people are put on shortened hours, the expectation of the employer at the time is they’ll go back to full production. Sometimes that doesn’t happen.”
Hearth and fireplace company Everwarm Inc. had some of its specialized gas plumbers sweeping the parking lot last year to keep them on the clock for at least 20 hours a week so they’d be eligible for work share. The company had eight of its 14 workers on the program last summer.
“We were looking at a disaster,” said Linda Alger, general manager of the Port Angeles, Washington, company. “There wasn’t work for our guys. We were looking at laying off half our employees.”
She said while it was stressful for the company to keep employees busy for the minimum hours, the effort paid off. “They got less than they would have if they’d been working full time, but they got more than if they went on unemployment. We got to keep our experienced people.” The state’s program has preserved almost 96,000 jobs since 2008, according to the Labor Department.
Traditional unemployment insurance stabilizes households and communities during short-term downturns, said Charles Fogarty, director of Rhode Island’s department of labor training in Cranston. Keeping workers on the job, especially in a new era of chronic long-term unemployment, also has broader societal and economic benefits of maintaining connections to the work force, he said.
“It’s an economic tool,” Fogarty said. “Training an employee is a very expensive and time-consuming proposition. If you can minimize that, and keep that trained workforce you already have, it puts you in a much more competitive position economically.”
In Rhode Island, which has the nation’s second-highest unemployment rate at 10.4 percent, work share has saved more than 14,000 jobs since 2008, according to the Labor Department.
Work share has the additional advantage of keeping Americans attached to the labor market. Laborers keep their skills and networks intact and can hunt for new jobs while they’re still employed.
“We have to be as creative as we need to be to keep industries from taking steps to sever relations with their workforce,” said Joe Carbone, president of The Workplace, an unemployment center in Bridgeport, Connecticut, that focuses on job-seekers out of work for 99 weeks or more. “Long-term unemployment takes a toll far beyond what most folks imagine. It’s not just that you’re out of work and have limited income. It’s that your skill levels become obtuse.”
While work share can be useful, policymakers and businesses need to proceed with caution, said Douglas Holmes, president of UWC-Strategic Services on Unemployment & Workers’ Compensation, a Washington-based business group that lobbies on unemployment insurance issues. The programs could drain already stressed unemployment insurance funds and, if used inappropriately, could delay inevitable economic disruptions, he said.
One reason Blue Crown cites for the drop in orders, for example, is that more dentists are sending work to China.
“If an individual continues to do the same job because this policy permits them to, when they would be better off spending time improving their skills doing the next job, that’s a factor that has to be taken into consideration,” Holmes said. “That turns the program from being a temporary measure to address a fluctuation in demand into one that becomes a long-term wage subsidy.”
At Blue Crown, where the least-experienced dental technician makes $17.50 an hour, orders still haven’t bounced back and co-owner Roberts is applying for her third year of work share.
“You have people that have been with you for 20 or 25 years, which most of our employees have been -- there’s no other work out there,” Roberts said. Another dental lab in town is outsourcing to China and she’s worried about the future, she said.
“I don’t even want to think about it,” she said. “How are these people going to make their mortgage and raise their families?”
To contact the reporter on this story: Lorraine Woellert in Washington at email@example.com
To contact the editor responsible for this story: Christopher Wellisz at firstname.lastname@example.org