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
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.”

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