How Work-Sharing Can Help Businesses, Boost the U.S. Economy, and Save Jobs
Businesses that need to cut their staffing costs face the hard choice of reducing employee hours or laying people off. Yet in 20 states around the country, there's a third option: work-sharing. The approach is saving jobs domestically and abroad. And with the U.S. economy slowing and unemployment edging up, it's high time that Congress and the White House take action to encourage work-sharing nationwide.
In a typical work-sharing arrangement, employees work up to 40 percent fewer hours per week and accept a small cut in pay. States use unemployment insurance funds to make up for a portion of the wage cut, while businesses are expected to kick in the rest.
It's a simple idea -- distribute the diminished amount of available work across a company's broader workforce. Work-sharing, while not painless, is good public policy because jobless benefits are used to encourage businesses to retain employees they would otherwise be forced to let go.
It's good for the economy, too, since unemployed people don't spend, sapping consumer demand. Moody's Analytics chief economist Mark Zandi estimates that every dollar spent on a work-sharing program would add $1.69 to U.S. economic output.
Business owners seem to like the concept. As Andrew Nowakowski, president of a Connecticut metal-working plant, told the NYT:
It's a lot better than layoffs. The alternative would have been to lay off three to seven workers, but that would mean that when things become busier, I'd run the risk of not having the trained people I need.
The New Buffalo Shirt Factory, a small apparel maker in upstate New York with some 70 employees, participated in the state's work-sharing program -- and saved 25 jobs. The company, which regularly laid off workers to adjust for changes in seasonal demand, was also better able to manage its labor costs.In New York, any business with at least five full-time employees who have been eligible for unemployment insurance for at least four full calendar quarters can apply to participate in the program. To qualify, employers must meet several conditions. Employee hours and wages must be cut between 20 percent and 60 percent, and worker benefits may not reduced or eliminated, among other things.
Results from the program are encouraging. More than 2,200 New York businesses participated in work-sharing last year, saving 11,000 jobs in the state, according to the WSJ.
Although other states should explore work-sharing, similar initiatives in Europe suggest the policy could work on a national scale in the U.S. Germany, which like other EU countries fell into a deep recession following the financial crisis, has kept unemployment in check in part through its kurzarbeit, or short work, program.
Under this system, a company reduces employee hours by at least 20 percent. The government replaces 60 percent of the lost wages, while the employer chips in with 20 percent. Workers must swallow a 4 percent reduction in pay, but it beats unemployment.
The NYT cites the example of Trumpf, a German machine-tool maker, that has survived the downturn without laying off any of its 4,000 domestic workers. In the U.S., by contrast, the company had to dismiss 90 of its 650 employees.
Why the difference? Part of the answer is that, in Germany, Trumpf could take advantage of government incentives to reduce worker hours rather than lay off people, a system known as short work. In the program, the government gives workers partial compensation for the lost wages.
"We wanted to keep our well-trained people on board," the Trumpf chief executive, Nicola Leibinger-Kammüller, wrote in an e-mail. "Short work helped a lot."Companies in the U.K. have also used work-sharing to avoid layoffs. British Airways, Ford, Honda and equipment manufacturer JCB all reduced employee hours in 2009, reports the New Economics Foundation, a London think-tank. Accounting giant KPMG also allowed personnel to work a four-day week, with 86 percent of staffers opting for the shortened schedule.
Work-sharing isn't right for every business. Companies that have already pared their workforce to the bone are unlikely to benefit, for instance. It's also questionable whether help should be extended to companies in sectors where economic productivity is unlikely ever to rebound. Such assistance should amount to a temporary, not permanent, subsidy.
But such concerns shouldn't outweigh the necessity of saving -- and creating -- jobs. Unemployment is severely hindering economic recovery, with the U.S. losing additional 131,000 jobs in July. Meanwhile, economist Dean Baker of the Center for Economic and Policy Research projects that reducing the employment-loss rate by 10 percent would create 2.4 million jobs a year.
This would get us back to full employment in two years, rather than five or six, as is currently projected.Two bills -- H.R. 4135 and S. 2831 -- are circulating in Congress that would expand state work-sharing programs. Members of the Obama administration have expressed support for the concept. What are we waiting for?
Image from Flickr user Myki Roventine
Related: