When business slowed last fall at Saint-Gobain, a plastics company in Bristol, R.I., the plant cut some employees’ hours by 40 percent. Fred Staudinger, a 55-year-old veteran line worker earning $21 an hour, found his week reduced to four days—and he was happy about it. The alternative was worse: possibly losing his job and living on unemployment insurance while he searched for a new position in a bleak market. Thanks to a program that helps companies on the brink of layoffs, Staudinger’s lost day of work didn’t mean a lost day of pay. The government reimbursed almost 70 percent of his missing salary, about $113 a week. In his off hours, Staudinger did chores around the house. “Have you heard of a honey-do list? My wife made sure I had one,” he says.
Rhode Island is one of more than two dozen states now using free federal dollars to experiment with a kind of unemployment insurance in reverse—paying to keep workers in their jobs instead of supporting them after they’re laid off. In Washington State, the program, known as work share, has paid dental technicians and plumbers at struggling companies. California wrote checks to construction workers when their employers couldn’t.
The funds enable companies to hang on to experienced workers while they wait for the economy to improve. For states forced to borrow when the recession wiped out their unemployment trust funds, the program provides some breathing room. In December, 4.8 million Americans had been out of work for six months or more, according to the U.S. Department of Labor—and 21 states have borrowed more than $28 billion to keep unemployment checks flowing.
Work share draws on decades-old efforts in Japan and Europe, notably Germany’s Kurzarbeit, which dates to 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 Organisation for Economic Co-operation and Development. In the U.S., the idea has been slower to take hold. Seventeen states have had their own small-scale work-share programs for years, but they were rarely used; in 2009 work share accounted for just 2 percent of Rhode Island’s unemployment insurance benefits—in part because states did little to promote them.
That changed last year, when the federal government began giving states money to introduce or expand work share as an alternative to traditional unemployment benefits. Democratic Senator Jack Reed of Rhode Island sponsored a bill to reimburse states for the cost of work share until August 2015. With support from business groups, the measure became part of the Middle Class Tax Relief and Job Creation Act that passed last February. Since then, 25 states and the District of Columbia have signed up. The money became available in September, and so far 11 states have collected a total of $92.3 million.
To qualify for the money, states require employers to continue funding existing health insurance and other benefits. In addition, companies can’t cut workers’ hours by more than 60 percent. Employees aren’t made whole for all their lost hours. States decide what portion of the shortfall they’ll cover and cap the total benefits a worker can receive. Employers have an incentive not to milk the system: Those who keep employees on work share for extended periods could be penalized with higher unemployment insurance taxes. (Except in Michigan: It will allow employers to keep workers on the program with no risk of penalty for as long as federal money is available.)
“Training an employee is a very expensive and time-consuming proposition,” says Charles Fogarty, director of Rhode Island’s Department of Labor and Training. “If you can minimize that and keep that trained workforce you already have, it puts you in a much more competitive position economically.” Mark Zandi, chief economist at Moody’s Analytics (MCO), calculates that every dollar spent on work share could generate $1.64 in economic growth, since that money is likely to be spent immediately.
Yet the program may let struggling companies cling to unrealistic hopes of recovery, cautions Douglas Holmes, president of UWC-Strategic Services on Unemployment & Workers’ Compensation, which lobbies on behalf of companies on unemployment issues. “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,” he says. “That turns the program from being a temporary measure to address a fluctuation in demand into one that becomes a long-term wage subsidy.”
This can be difficult for employers to concede. At Blue Crown Dental Arts, a lab in Kennewick, Wash., that makes crowns and implants, orders are down in part because more dentists are sending work to labs in China. Blue Crown’s co-owner, Belinda Roberts, credits work share with saving the jobs of seven dental technicians, the least experienced of whom earns $17.50 an hour. “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 says. She worries what her employees will do if she has to let them go. “I don’t even want to think about it,” she says.
At Saint-Gobain in Rhode Island, the program worked just as it was intended to. Late last year orders for the company’s high-performance plastics had fallen 20 percent as customers—including aerospace companies—braced for more than $600 billion in tax increases and spending cuts set to take effect on Jan. 1. Manager Rob Gaiser figured business would bounce back and wanted his team in place when it did. “I knew it was temporary,” he says. “I needed a way to bridge the gap.” After Congress avoided the fiscal cliff, Saint-Gobain’s business picked up. On Jan. 18, Staudinger was back at work full time.
The bottom line: Since September, work share has paid $92.3 million to companies in 11 states, helping employers avoid layoffs.