Friday, August 31, 2012
By Derek Thomas
In response to a recent announcement that Indiana was eligible for over $2 million from the U.S. Department of Labor to implement a voluntary work-share program in Indiana, the Indiana Department of Workforce Development (DWD) announced last week that it would not participate in the voluntary program.
In 2011, the Institute released a report (Work-Sharing: A Win-Win-Win Strategy for Avoiding Job
Loss) and has since worked closely
with lawmakers on both sides of the aisle in an effort to implement a voluntary
work-share program in Indiana. Because work-sharing makes sense from a public
policy perspective, we thought it was fair to explain the program while
responding to DWD’s concerns.
Work-sharing is a voluntary unemployment insurance
(UI) program that targets jobs preservation by providing employers with an
alternative to layoffs during times of decreased demand. Typically, if a firm sees a 20 percent
decrease in demand, it would lay off 20 percent of its workforce. Under work-sharing,
the employer has the option to decrease pay for a particular line or department
within the firm by 20 percent for a short period of time—usually about 6
months.
The 20 percent loss incurred by the employee is
partially made up by the state—usually half. For example, an employee normally
earning $600 per week would, under a work sharing program, receive $480 in
wages (or 80 percent of $600) and $60 in UI benefits (half of the 20 percent employee
loss). Instead of the $390 she would receive under normal UI benefits, the
employee is temporarily earning $540 (90 percent of her original income) and is
able to maintain health benefits and avoid the ranks of the unemployed.
1. Concern:
Work-sharing will “hurt production in the
companies that participate”:
Our research points to a number
of studies that show just the opposite (here, here, here)—that
work-share policies are associated with decreasing unemployment and competitive
growth. Because employers use work sharing “in lieu of” traditional UI, the
program can only be used when the employer is already facing a layoff decision
due to reduced demand. By reducing hours instead of workers, employers can
respond more nimbly to fluctuating demand.
2. Concern:
Work-sharing “discourages employees from
finding new jobs”:
Under work-sharing, the
employer is also able to retain talent, as opposed to paying the high
recruitment costs when demand returns. Because Indiana employers are finding it
more difficult to find properly skilled employees, work-sharing is a double win
for employers. In fact, retaining skilled workers was the reason why Michigan Governor Rick Snyder (R) signed work-sharing
legislation in July 2012.
3. Concern:
Work-sharing “would have a negative
impact on the [UI] trust fund”:
Work-sharing is an alternative
to layoffs. Should an employer choose to participate, the cost to the UI trust
fund for 5 participants under work-sharing is the same as one participant under
traditional UI. Work-sharing was introduced in the 2011 legislative session as HB1151 and
Indiana’s non-partisan Legislative Services Agency (LSA) performed a fiscal
impact statement that estimate zero costs to the UI trust fund. And, because the federal grant now provides 100%
reimbursement rates to the UI trust fund for up to 3 years, each job saved
equals savings to the UI trust fund— a potential for over $51 million in savings over the
next three years.
While not addressed in DWD’s concerns,
many states are able to perform the function with existing staff as work-sharing
administration is far less labor intensive than traditional UI. Michigan has
stated they will not hire new staff
to maintain program. Indiana’s fiscal impact statement shows minor
administration costs, but this was done before the announcement of the federal
grant—which should cover all administration costs
4. Concern: “There are only 26,000 people in the entire
country even utilizing the program” and “work-sharing programs won’t help Indiana”:
As intended, usage of this
program skyrocketed at the beginning of the recession and has dropped since—responding
accurately to decreased demand. Over 55,000 jobs have been saved so far in
2012. At its peak, in 2009, over 165,000 jobs were saved—in less than half of
the states. Our position is that any number of jobs saved is beneficial.
As seen in our report though, a large variance in participation existed between
states, and those who saw lower participation cited a lack of effective
marketing. Those states with successful programs pointed to robust marketing
strategies. The Department of Labor has acknowledged this, which is why 2/3rds
of Indiana’s grant money is allocated towards outreach.
In addition, work-sharing has consistently
and disproportionately benefited the manufacturing sector. Since this sector
accounts for over 16 percent of Indiana’s economy, and because nearly one
quarter of manufacturing jobs in Indiana depend on exports, any stalling in the
European economy could impact Indiana workers. The idea is to have the program
in place for the next state-wide downturn, but also available as a tool for
pockets of industry that may face a temporary downturn in demand at any given
time.
Work-sharing offers Indiana a unique opportunity to
strengthen our local economy by offering Hoosier employers the option to retain
valued workers through tough times of temporary downsizing. We urge the Indiana
Department of Workforce Development to reconsider rejecting a federal grant for
a work-sharing program in Indiana that, in a time of tight budgets, would save
the state money and benefit employers
and workers alike.
UPDATE: At the time of this posting, it was learned that the
Indiana House Democrats have sent a letter to Governor Daniels, urging him to create a work share program for
Indiana. We’ll be eagerly awaiting his response…
