When homes sales started tumbling more than three years ago, New York-based window shade manufacturer, Comfortex, felt the pain. But instead of cutting jobs, the 300-employee business reduced some of its workers' hours, and the state labor department agreed to make up part of their lost wages with unemployment checks.
Called work sharing, or short-time compensation, the program has helped thousands of companies avoid layoffs in New York and 16 other states. This year, lawmakers in seven more states are considering bills that would authorize the widely praised approach to saving jobs.
Here's how it works. When a business enters a slump and needs to cut payroll, it can seek state approval for a plan to reduce employees' hours instead of cutting jobs. For example, a 20 percent reduction in the workforce could translate to a 20 percent reduction in hours, or a four-day workweek. To help employees stay afloat, the state would pay workers about half of their lost wages through the federal-state unemployment insurance program, which temporarily provides laid-off workers with a portion of their paychecks.
"Every day, workers tell me they'd rather work at least part of their regular week instead of face a layoff," says New York Labor Commissioner Colleen Gardner . At no additional cost to states, the program helps businesses retain skilled employees, allows workers to stay on the job and keep their benefits and boosts the local economy.
So why don't more states offer it? Experts aren't sure, but some suggest states may mistakenly think the unconventional approach will strain their unemployment trust funds or create too much paperwork for their over-burdened workforce agencies.
A study by the Congressional Research Service found that any impact on states' unemployment trusts funds would be short-term and minimal, because the cost of partial jobless benefits for work-sharing employees is roughly equivalent to the cost of full benefits for those who would otherwise be laid off. Companies, which pay into the unemployment insurance trust fund through a state and federal tax, would be charged higher rates when they enter a work-sharing program, but no higher than they would pay if they laid off employees.
As for administrative burden, the report found that work sharing could increase initial costs for states that use a paper-based process because more people would be involved in work sharing than would have been laid off. But because work-sharing participants do not have to check in with the unemployment agency on a weekly basis, as do those on regular unemployment, the overall administrative costs should be about equal.
Still, concerns over costs persist. That's why Democratic Sen. Jack Reed of Rhode Island has proposed a bill that would lure more states into the program by providing federal funding, simplifying the rules and raising the program's profile.
In Reed's home state, where unemployment is well above the national average, the labor department has aggressively publicized work sharing and boasts the highest per capita number of workers who benefit from it. But in other states, the program is little known and seldom used.
New York has also pushed its program and has seen a seven-fold increase in its use since 2007. Credited with saving 11,000 jobs last year, New York's Shared Work plan now includes more than 2,300 businesses.
Other states have also seen big surges in work sharing. Connecticut had a ten-fold increase in its program between 2008 and 2009 and Massachusetts had a six-fold increase.
Started in Europe in the 1920s and expanded after World War II, work sharing programs spread to the U.S. in 1978 when California informally adopted the innovative approach to helping companies and workers weather tough times. In 1982, California formalized the program by enacting legislation, and Arizona and Oregon adopted similar programs the same year.
As a result, Congress in 1982 enacted a temporary amendment to the Social Security Act, which authorizes the federal-state unemployment insurance system, and made work sharing in 1992 a permanent program that all states could choose to offer its business sector. The program can be used to help companies get through seasonal lulls as well as full-blown recessions.
According to U.S. Federal Reserve Board chairman Ben Bernanke, "Many economists believe that the current U.S. unemployment insurance (UI) system is biased towards the use of layoffs because laid off workers are eligible for UI benefits while workers whose hours have been reduced because of slack work are not." Work-share programs address this potential bias, Bernanke wrote in support of Reed's bill, noting that their use is minimal.
Employees who receive unemployment checks through work-sharing programs represent just over 2 percent of the total number of beneficiaries, but that number is growing.
Bills in at least seven states - Colorado, Hawaii, Ohio, Oklahoma, New Hampshire, New Jersey and Pennsylvania — would create new programs, and a South Carolina Democratic gubernatorial candidate, Jim Rex , promises to make work sharing a high priority.
In New York, promotion and administration of the rapidly growing program has cost the state nothing. A few employees were shifted from one department to another and promotion consisted of getting the word out to the media and posting a video on the department's Web site.
In the video, Comfortex president Thomas Marusak explains that without the work sharing program his company, which is seasonal, would have to lay off a large number of people every year in January and rehire again in April or May. That would mean two months of training for new personnel since old employees likely would not be available, he said.
Comfortex human resources chief Patricia Gaglianese says she files a work plan with the state once a year and lists the names of all employees who will be affected. Then she works closely with New York's labor department to ensure that everyone receives their benefit checks on time. Last year, 45 Comfortex employees worked shorter hours; this year 150 people will be affected.
"Sometimes I feel like I'm working for the state. If one of my employees isn't eligible because they're just coming off of unemployment, the state lets me know and we work it out," Gaglianese says.