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 »
19 FACE-TO-FACE MEETINGS
Latest Count: 12 Trump Campaign Staffers Had Contact with Russians
1 days ago
THE LATEST
AT ISSUE: COMEY FIRING, SESSIONS’S RECUSAL
Mueller Seeks Documents from DOJ
4 days ago
THE LATEST

Special counsel Robert Mueller "is now demanding documents from the department overseeing his investigation." A source tells ABC News that "Mueller's investigators are keen to obtain emails related to the firing of FBI Director James Comey and the earlier decision of Attorney General Jeff Sessions to recuse himself from the entire matter."

Source:
MULVANEY SAYS PROVISION ISN’T A DEALBREAKER
Trump May Be OK with Dropping Mandate Repeal
4 days ago
THE LATEST

"President Donald Trump would not insist on including repeal of an Obama-era health insurance mandate in a bill intended to enact the biggest overhaul of the tax code since the 1980s, a senior White House aide said on Sunday. The version of tax legislation put forward by Senate Republican leaders would remove a requirement in former President Barack Obama’s signature healthcare law that taxes Americans who decline to buy health insurance."

Source:
FRANKEN JUST THE BEGINNING?
Media Devoting More Resources to Lawmakers’ Sexual Misconduct
4 days ago
THE LATEST

"Members of Congress with histories of mistreating women should be extremely nervous. Major outlets, including CNN, are dedicating substantial newsroom resources to investigating sexual harassment allegations against numerous lawmakers. A Republican source told me he's gotten calls from well-known D.C. reporters who are gathering stories about sleazy members."

Source:
STARTS LEGAL FUND FOR WH STAFF
Trump to Begin Covering His Own Legal Bills
6 days ago
THE DETAILS
×
×

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