The Best Fix for High Unemployment? Prevent Companies From Laying Off Workers

An innovative program tries to prevent joblessness by temporarily paying a portion of workers’ salaries at struggling companies.

Out-of-work Americans help one another scan job listings at a career center.
National Journal
Clare Foran
Add to Briefcase
Clare Foran
Jan. 9, 2014, 5 a.m.

This is the first in a weeklong series to ex­am­ine dif­fer­ent pro­grams around the coun­try that at­tempt to tackle the un­em­ploy­ment crisis and keep Amer­ic­ans con­nec­ted to the work­force.

In 2009, the head of the Quin­lan Com­pan­ies had a hard de­cision to make. The re­ces­sion had taken its toll on the Rhode Is­land-based re­cords-man­age­ment firm. Cus­tom­ers were can­celing con­tracts. Rev­en­ue was down. It looked like there would have to be lay­offs. Then, CEO Mike Cooley heard about “work share,” a pro­gram run by the state that offered a solu­tion.

“We cut back hours, and the state paid work­ers a per­cent­age of their lost wages. In the end, we didn’t have to lay off any em­ploy­ees. It helped us get back on our feet,” Cooley says.

Rhode Is­land’s work-share pro­gram has been op­er­at­ing since 1992. It’s de­signed to help busi­ness own­ers avoid lay­offs when times get tough and state of­fi­cials say it’s saved more than 15,000 jobs since the start of the re­ces­sion.

“Work share be­ne­fits both sides,” says Wayne Vro­man, a seni­or fel­low at the Urb­an In­sti­tute, a non­par­tis­an Wash­ing­ton think tank fo­cused on eco­nom­ic and so­cial policy re­search. “Em­ploy­ers get to re­tain skilled work­ers and at the same time work­ers aren’t get­ting laid off.”

Work share re­quires busi­ness own­ers to scale back hours for full-time em­ploy­ees by 10 to 50 per­cent. Em­ploy­ees can then earn un­em­ploy­ment be­ne­fits for the time they aren’t on the clock. This helps off­set lost wages, but work­ers can still ex­pect to feel the fin­an­cial pinch. (The com­bin­a­tion of reg­u­lar pay for hours worked and un­em­ploy­ment doled out for docked time adds up to roughly 91 per­cent of what an em­ploy­ee would nor­mally make.) Busi­nesses can par­ti­cip­ate in the pro­gram for up to three con­sec­ut­ive years. The only ex­cep­tion is sea­son­al busi­ness mod­els, which are not eli­gible.

Gary Me­lillo, an em­ploy­ee at Taco Inc., a man­u­fac­turer of heat­ing, vent­il­a­tion, and air-con­di­tion­ing sys­tems based in Cran­ston, R.I., was re­lieved when he found out his com­pany was go­ing to par­ti­cip­ate in work share.

“All I could think was, ‘Thank God we’re not go­ing to lose our jobs.’ I knew what the al­tern­at­ive would have been,” Me­lillo says. “You’re tak­ing a hit be­cause you don’t get the full pay that you would have been get­ting, but lay­offs would have been much worse.”

Rhode Is­land isn’t the only state with work share. Twenty-sev­en states and the Dis­trict of Columbia cur­rently run short-term com­pens­a­tion pro­grams, in­clud­ing Cali­for­nia, Col­or­ado, Flor­ida, Mary­land, New York, Ore­gon, Pennsylvania, and Wis­con­sin.

But the pro­gram has been uniquely suc­cess­ful in Rhode Is­land. The state has the highest rate of em­ploy­er par­ti­cip­a­tion re­l­at­ive to the size of its labor force. Just last year, 171 busi­ness own­ers en­rolled in the pro­gram, with an av­er­age length of par­ti­cip­a­tion of roughly 19 weeks.

Part of the reas­on the pro­gram has taken off is be­cause state of­fi­cials have pushed to ex­pand it to coun­ter­act dam­age done by the re­ces­sion. Un­em­ploy­ment rates in the Ocean State are per­sist­ently high­er than the na­tion­al av­er­age, com­ing in at 9.2 per­cent in Oc­to­ber while the na­tion­al rate re­gistered at 7.3 per­cent.

“The re­ces­sion star­ted earli­er here than it did in the rest of the coun­try and we were hit much harder than many places in the U.S.,” says Charles Fog­ar­ty, dir­ect­or of the state’s De­part­ment of Labor and Train­ing. Work share, Fog­ar­ty says, has been one of the few bright spots in the eco­nomy.

“In the four years pri­or to 2011, Rhode Is­land lost 40,000 jobs. If we hadn’t had work share in place, we would have lost an­oth­er 15,000. That would have been ab­so­lutely dev­ast­at­ing,” Fog­ar­ty says.

The pro­gram has its pit­falls, however, and it won’t solve every un­em­ploy­ment prob­lem. Some eco­nom­ists warn that work share could ar­ti­fi­cially prop up fail­ing com­pan­ies. Busi­ness own­ers could also try to game the sys­tem by un­duly be­ne­fit­ing from the pro­gram. State of­fi­cials say they mon­it­or par­ti­cipants closely to pre­vent this from hap­pen­ing.

Then there’s the ques­tion of cost. In 2012, the fed­er­al gov­ern­ment passed le­gis­la­tion aimed at bol­ster­ing work share pro­grams across the U.S. The biggest in­cent­ive offered up was fed­er­al re­im­burse­ment for the draw­down in state un­em­ploy­ment trust funds. Rhode Is­land qual­i­fied for 100 per­cent re­im­burse­ment un­der the law. But fed­er­al fund­ing won’t last forever. It’s set to sun­set in 2015 and aus­ter­ity meas­ures have already star­ted to chip away at na­tion­al as­sist­ance for the pro­gram.

Des­pite these chal­lenges, pro­gram ad­min­is­trat­ors say work share con­tin­ues to play a crit­ic­al role in buoy­ing the state’s eco­nomy. “We’re do­ing bet­ter and re­cov­ery is un­der way, but we’ve lagged be­hind the rest of the na­tion quite a bit,” says Laura Hart, the former com­mu­nic­a­tions ad­min­is­trat­or for the state De­part­ment of Labor and Train­ing. “That’s why work share is so im­port­ant right now. It provides job se­cur­ity in what’s still something of an un­cer­tain time.”

What We're Following See More »
ONLY BROAD PRINCIPLES
Mulvaney: Tax Reform Details Won’t Be Released This Week
5 minutes ago
THE LATEST

Despite President Trump's announcement that his tax reform proposal would be released this week, Office of Management and Budget Director Mick Mulvaney now says it will be ready in June. This week's announcement will be limited to "specific governing principles."

Source:
OFFSHORE OIL AND GAS
Trump To Sign Order Calling For Expanded Drilling
1 hours ago
THE DETAILS

Donald Trump is expected Monday to sign an executive order which will mark his administration's first action on offshore oil and gas drilling. The order is expected to call for a "review of the locations available for offshore oil and gas exploration and of certain regulations governing offshore oil and gas exploration."

Source:
DOMESTIC PRIORITIES
Pence Cuts Asia Trip Short For Big Week
1 hours ago
THE DETAILS

Vice President Mike Pence has cut his Asia trip short "to race back to Washington, where the Trump administration faces a critical week on tax reform and a funding plan to keep the government running, an aide said on Sunday." Pence will return to Washington on Tuesday morning instead of Wednesday. Trump has a busy week ahead, as he plans to roll out a tax reform on framework, sign a number of executive orders, and works to keep the government open past Friday.

Source:
24% GOOD ENOUGH FOR FIRST PLACE
Macron, Le Pen Lead French Elections
3 hours ago
THE LATEST

"Centrist Emmanuel Macron and far-right politician Marine Le Pen led the first round of voting in France’s presidential election, according to early projections, as voters redrew the political map, placing the European Union at the center of a new political divide. Projections by the Kantar-Sofres polling firm showed Mr. Macron on track to win the first round with about 24% of the vote, ahead of Ms. Le Pen with nearly 22%." The vote marks the end of the country's dominance by conservative and socialist parties. The top vote-getters head to a runoff on May 7.

Source:
MENDING FENCES?
Trump to Deliver Keynote for Holocaust Memorial Event
3 hours ago
THE DETAILS

President Trump will deliver the keynote address for at the National Holocaust Museum's National Day of Remembrance ceremony on Tuesday. He'll speak from the Capitol Rotunda. The move is likely an effort to try to mend fences with Jewish groups. In January, "the White House ignited controversy when it didn't mention Jews or anti-Semitism in a statement on International Holocaust Remembrance Day." And certain members of his inner circle are still suspected of harboring white supremacist or anti-Semitic views."

Source:
×
×

Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.

Login