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…

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