Subsidy program retains employees at reduced hours
Linda Petersen remembers when the housing market collapsed in 2008 and she was faced with having to lay off most of the people she worked with at her land title and escrow company in Washington state.
But there was another option: a little-known and rarely used state unemployment insurance program that subsidizes the wages of workers who are kept on the payroll with reduced hours instead of being laid off.
“Oh, my goodness, yes, it saved us,” said Petersen, chief financial officer of Land Title Co. of Kitsap
County. The program, known as work sharing, “allows us to keep and retain that talent, so when things tick back up, we’ve still got them, and it allows them to pay their bills and stick with us through the hard times.”
For the first time in 10 years, Land Title Co. recently took advantage of the state’s work sharing program — this time to supplement the income of employees at high risk of complications from COVID-19 and unable to go to the office after the coronavirus outbreak.
“I am definitely a big fan,” Petersen said.
She is not the only one. Work sharing programs
are popular among economists, Republican and Democratic policymakers, employers and workers — at least those who have heard of them. The problem is that few have, though economists say work sharing is one of the best ways to strengthen the labor market during a downturn.
Of the roughly 30 million people receiving unemployment benefits, only 309,000 — 1 percent — are getting them through a shared work program.
Congress sweetened the program’s appeal during the pandemic, promising as part of the coronavirus relief law that the federal government would pick up the cost from the states through the end of the year, without an overall cap, but nearly half of all states still do not have such a program.
“I’m sick of this being the ‘best kept secret,’” Suzan LeVine, commissioner of Washington’s Employment Security Department, said of the program, officially titled short-time compensation. “It is the diamond in the rough of the unemployment benefits system.”
Work sharing is widely credited with saving jobs and easing the pain and severity of economic downturns. But while popular in Germany and other advanced industrial countries, such programs have had trouble gaining traction in the U.S., where job protection laws are comparatively weak and layoffs are a ready solution when revenues drop. States are not required to offer shorttime compensation, and many choose not to devote the resources — such as funds for updated computer technology — to create and run such a program.
One of the biggest problems, said Kevin Hassett, former chairman of President Donald Trump’s Council of Economic Advisers and a longtime champion of the approach, is that most employers and workers simply do not know about it.
Washington state, which started its program in 1983, has vastly expanded participation since the pandemic. Between March and August last year, 688 businesses took part; now 3,560 are doing so. One in nine Washington workers receiving state jobless benefits is getting them through work sharing.
Ted Brown Music is one business taking part. Ted Brown opened his first music store in downtown Tacoma during the Great Depression, and his family sustained and expanded it through the financial meltdown and recession in 2008. But this crisis has been different.
Less than two weeks after Washington reported the nation’s first coronavirus death, the state started closing restaurants, schools and businesses. The company’s stores had to shutter or curtail operations, and its wide-ranging school programs and live events were canceled.
“We originally tried not to lay off anybody,” said Whitney Grisaffi, Ted Brown’s granddaughter and the company’s president. But it soon became apparent that the company could not afford to keep paying most of its 180 employees. “Everyone was so afraid,” Grisaffi said.
Although program rules can vary by state, companies must apply individually and file a separate plan for each unit or category of workers. Ted Brown Music was approved within two weeks. Now 150 of its employees are taking part. They are paid an hourly wage for the time they work and receive state unemployment benefits for the hours they don’t. They were also eligible to receive the federal government’s weekly $600 supplemental job benefit until it expired last month.
Though the program involves paperwork for employers, Grisaffi said its benefits far outweighed the burdens.
“We would have been forced to lay off people and work with more of a skeleton crew,” Grisaffi said. “This saved us a whole lot of jobs.” Under the program, the company is also continuing to pay its share of employees’ health insurance costs.
The prospect of saving jobs and speeding a recovery is what prompted policymakers after the Great Recession to expand work sharing, and they included provisions to encourage states to use it in 2012, when the payroll tax cut was extended. Currently, 26 states have permanent programs.
A temporary economic crisis such as the coronavirus is the kind of situation that work sharing was designed for, said Katharine Abraham, an economist at the University of Maryland and a member of the Council of Economic Advisers during the Obama administration. And the effect is more focused than, say, cutting the payroll tax or handing out stimulus checks.
“If you think these businesses aren’t going to go away, then laying people off and having them take jobs elsewhere is a lot of disruption that doesn’t need to happen,” said Abraham, who has extensively researched the topic.
Employers preserve their relationships with workers and avoid the costs of ramping back up and retraining. Workers avoid layoffs while retaining access to their health insurance and a steady income. And they have a better chance of fending off the longer-term side effects that often accompany layoffs, such as permanently reduced income.
The federal Paycheck Protection Program, which offered forgivable loans to businesses that kept workers on the payroll, had a similar goal. But work sharing continues to help prop up businesses facing a slow recovery by allowing their staffs to divide the available hours.
For states, which have been clobbered by zooming costs and plunging tax revenues, work sharing is like finding a winning lottery ticket tucked away in a drawer. Many states have exhausted their unemployment insurance trust funds — which are financed by taxing employers — and been forced to borrow from the federal government to continue paying benefits.
Jeff Donofrio had not heard of work sharing when he took over as director of Michigan’s Department of Labor and Economic Opportunity. But after Congress increased incentives as part of the emergency relief package passed in March, he became a vocal pitchman.
With work sharing, the federal government pays the bill. As of July, Michigan had saved at least $212 million in unemployment pay, said Donofrio, who enlarged the program’s staff, had the state’s computers reprogrammed and streamlined the application process.
States and localities have themselves taken advantage of work sharing.
Between May and July, 31,000 Michigan state employees took part in the program, logging in fewer hours and receiving some jobless benefits. The state said it had saved $80 million in wages.