Reforming Unemployment Insurance to Protect Jobs and Incomes for American Workers

In his inaugural address, President Obama praised workers who “would rather cut their hours than see a friend lose their job.”  But in most states, our unemployment insurance (UI) system discourages reducing hours in this way. A worker who is laid off has access to UI benefits that temporarily cover part of lost wages, but a worker whose hours are reduced has no such access, creating an incentive for layoffs while leaving workers who face an involuntary reduction in their hours with no protection or support. Today the Department of Labor is issuing guidance on new legislation that will help to address these problems. This guidance is part of a series of important UI reforms designed to contribute to job creation and job placement that the President proposed in the American Jobs Act, were signed into law in February and are now being implemented. 

Programs in some states that allow workers whose hours have been cut to claim pro-rated UI benefits—so-called short-time compensation or work sharing programs—help to keep workers on the job.   President Obama has long advocated the expansion of work sharing to help employers and their workers. It’s an idea that has been supported by economists across the political spectrum. The President’s proposal to expand the number of states with work-sharing programs, and increase employer awareness of the benefits of work sharing, was included in both his FY 2012 and 2013 Budgets, and in last September’s American Jobs Act. That proposal was signed into law on a bipartisan basis as part of the February extension of the payroll tax cut, and is being implemented today through guidance released by the Labor Department. 

The premise of work sharing is simple: If a struggling employer puts in place a work sharing plan, a worker whose hours are reduced will have some of their lost pay made up through the UI system. This creates a true win-win situation for businesses and workers. By softening the effect of reduced hours on workers, it gives businesses a better chance of hanging on to their skilled employees during a rough period. With a full-strength workforce operating at reduced hours, businesses have the ability to scale up quickly when their economic situation improves. 

Interest in work sharing grew during the recent recession, but fewer than half of the states operate a work sharing program, and employers may not know about work sharing even where it is available. The new law has three major components, all of which are designed to encourage states to implement a work sharing program and promote it among their employers. In states that already have a permanent work sharing program in place, the new law provides temporary Federal reimbursement for the benefits paid to workers under the state program.  In states that do not, it offers a temporary Federal work sharing program to bridge the gap until the state can create a permanent program. Finally, states that create a new program or wish to expand an existing one will have access to $100 million in Federal implementation grants to help them jump-start program participation.   

A number of states already have work sharing programs. In the state of Rhode Island, work sharing is a well-established part of the unemployment insurance system. Senator Jack Reed has been a strong advocate of the program at a national level, and was the lead sponsor of the legislation that formed the basis for the President’s proposal.  In Rhode Island, employers are well-informed about the benefits of the program, and can access it with a minimum of hassle. Work sharing played a crucial role in Rhode Island in the recent recession:  an average of over 4,000 people per week claimed benefits under work sharing programs in the state during 2009, preventing unemployment from rising even higher. Last fall, Deputy Secretary of Labor Seth Harris visited the Pilgrim Screw Corporation, a fastener manufacturing firm that used work sharing to avoid laying off 35 workers in their Rhode Island facility. Said Pilgrim’s President Geoff Grove at the time, “The work-sharing program in Rhode Island has been a lifeline for Pilgrim.  It’s helped a small manufacturing business like ours to maintain the institutional knowledge and skills that are crucial for our success.” 

As the experience of many states including Rhode Island, and of many employers including Pilgrim has shown, work sharing can give businesses and workers added flexibility to make it through tough times.