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Unemployment Compensation: Short-Time
Compensation and Compensated Work
Sharing ArrangementsCompensated Work Sharing Arrangements
(Short-Time Compensation) as an Alternative
to Layoffs
Alison M. Shelton
Analyst in Income Security
September 21, 2009February 3, 2010
Congressional Research Service
7-5700
www.crs.gov
R40689
CRS Report for Congress
Prepared for Members and Committees of Congress
c11173008
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Unemployment Compensation: Short-Time Compensation and Work Sharing
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Work Sharing Arrangements (Short-Time Compensation) as an Alternative to Layoffs
Summary
Short-time compensation (STC) is a program within the federal-state unemployment
compensation system. In the 17 states that operate STC programs, workers whose hours are
reduced under a formal work sharing plan may be compensated with STC, which is a regular
unemployment benefit that has been pro-rated for the partial work reduction.
Although the terms “work sharing” and “short-time compensation” are sometimes used
interchangeably, the term “work sharing” refers to any arrangement under which workers’ hours
are reduced in lieu of a layoff. Under a work sharing arrangement, a firm faced with the need to
downsize temporarily chooses to reduce work hours across the board for all workers instead of
laying off a smaller number of workers. For example, an employer might reduce the work hours
of the entire workforce by 20%, from five to four days a week, in lieu of laying off 20% of the
workforce. States with STC programs require employers who seek STC for their workers to
submit a formal work sharing plan for approval.
Employers have used STC combined with work sharing arrangements to reduce labor costs,
sustain morale compared to layoffs, and retain highly skilled workers. Work sharing can also
reduce employers’ recruitment and training costs by eliminating the need to recruit new
employees when business improves. On the employee’s side, work sharing spreads more
moderate earnings reductions across more employees—especially if work sharing is combined
with STC—as opposed to imposing significant hardship on a few. Many states also require that
employers who participate in STC programs continue to provide health insurance and retirement
benefits to work sharing employees as if they were working a full schedule. Work sharing may
bring macroeconomic benefits to state governments if it helps to preserve employment, consumer
spending, and revenues during cyclical downturns.
Work sharing and STC cannot, however, avert layoffs or plant closings if a company’s financial
situation is dire. In addition, some employers may choose not to adopt work sharing because
laying off workers may be a less expensive alternative. This may be the case for firms whose
production technologies make it expensive or impossible to shorten the work week. For other
firms, it may be cheaper to lay off workers than to continue paying health and pension benefits on
a full-time equivalent basis. Work sharing arrangements in general also redistribute the burden of
unemployment from younger to older employees, and for this reason they may be opposed by
workers with seniority who are less likely to be laid off.
From the perspective of state governments, concerns about the STC program have included the
program’s high administrative costs. Massachusetts has made significant strides in automating
STC systems and reducing costs, but other states still manage much of the STC program on paper.
Currently, only 17 states operate STC programs to support work sharing arrangements. The STC
Through
the end of 2008, the STC program has never constituted more than about 1% of unemployment
benefits paid annually
across the U.S. The reasons for low state across the U.S, although very preliminary data for the first three quarters of
2009 indicate that this ratio may recently have risen to as high as 2%. The reasons for low state
and employer take-up of the STC program are not
completely clear, but a key cause would appear
to be ambiguity in the 1992 federal law that
authorizes STC. Because of this ambiguity, the U.S.
Department of Labor (DOL) has not
provided guidance or technical assistance on STC to the
states since 1992. A more active public
policy would require either DOL reinterpretation of the
1992 law or congressional action to either
clarify federal law or give the Secretary of Labor
authority to determine needed additional
provisions.
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Unemployment Compensation: Short-Time Compensation and Work SharingWork Sharing Arrangements (Short-Time Compensation) as an Alternative to Layoffs
Contents
What Are Short-Time Compensation and Work Sharing?.............................................................1
Short-Time Compensation Versus Partial Unemployment Benefits ........................................3
Program Reach and Beneficiaries ................................................................................................3
Benefits and Concerns.................................................................................................................67
State Governments and State Unemployment Trust Funds .....................................................67
Employers.............................................................................................................................89
Employees ............................................................................................................................9 10
Legislative History and Current Issues ...................................................................................... 1011
International Experience ........................................................................................................... 14
The Fair Labor Standards Act and Overtime Pay for Salaried Employees .................................. 15
Recent Legislative Activity ....................................................................................................... 1316
Concluding Remarks................................................................................................................. 1316
Tables
Table 1. Short-Time Compensation (STC) and Regular Unemployment Insurance (UI)
Beneficiaries, 1982 to 20082009......................................................................................................4
Table 2. State Legislation and Short-Time Compensation (STC) First Payments As
Percentage of Regular Unemployment Compensation First Payments.......................................5
Table 3. Approximate Number of Jobs “Saved” by Short-Time Compensation.............................6
Table A-1. States with Short-Time Compensation Programs ...................................................... 1518
Appendixes
Appendix. State Implementation of Short-Time Compensation (STC) Programs........................ 1518
Contacts
Author Contact Information ...................................................................................................... 1720
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he recession that began in December 2007 may reopenhas reopened discussions about short-time
compensation (STC) and work sharing. In his inaugural address, President Barack Obama
said, “It is the kindness to take in a stranger when the levees break, the selflessness of
workers who would rather cut their hours than see a friend lose their job, which sees us
through our darkest hours.”1
T
STC, sometimes called work sharing, is a program within the federal-state unemployment
compensation system that provides pro-rated unemployment benefits to workers whose hours
have been reduced in lieu of a layoff. STC may be helpful to a firm and its workers during an
economic downturn or other periods when employers determine that a temporary reduction in
work hours is necessary.
Arrangements that combine work sharing with STC have never reached many workers. As will be
discussed below, only one-third of states have enacted STC legislation and, within these states,
few firms and workers have participated. The reasons for this seem to be a combination of
difficulty the U.S. Department of Labor (DOL) has had in implementing the authorizing
legislation, lack of awareness on the part of employers, unsuitability of work sharing
arrangements for some firms or workers, and concerns in some states about the administrative
costs of the program.
What Are Short-Time Compensation and Work
Sharing?
In a typical example of work sharing, a firm that must temporarily reduce its 100-person
workforce by 20% would accomplish this by reducing the work hours of the entire workforce by
20%—from five to four days a week—in lieu of laying off 20 workers. Workers whose hours are
reduced are sometimes compensated with STC, which is regular unemployment benefits that have
been pro-rated for the partial work reduction.2
Working reduced hours because of economic conditions is currently quite common. In May 2009,
October
2009, an estimated 6.87 million workers were employed part-time because of slack work or business
conditions.3 In February 2009, consulting firm Watson Wyatt surveyed 245 U.S. companies and
found that 13% had reduced employee workweeks, whereas another 8% were planning to do so. 4
The terms “short-time compensation” and “work sharing” are used interchangeably in the
promotional materials that many states have developed. The term “work sharing,” however, refers
1
President Barack Obama, Inaugural Address, January 21, 2009, available at http://www.whitehouse.gov/
the_press_office/President_Barack_Obamas_Inaugural_Address.
2
For more on the federal-state unemployment compensation system, see CRS Report RL33362, Unemployment
Insurance: Available Unemployment Benefits and Legislative Activity, by Julie M. Whittaker and Alison M. Shelton.
3
U.S. Bureau of Labor Statistics, Employment Situation News Release, MayOctober 2009, Table A-5, “Employed Persons by
by Class of Worker and Part-time Status.”
4
Watson Wyatt Worldwide, “Effect of the Economic Crisis on H.R. Programs, Update: February 2009,” available at
https://www.watsonwyatt.com/news/pdfs/WT-2009-11232.pdf.
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more broadly to any arrangement under which a firm chooses to reduce work hours across the
board for many or all workers instead of permanently laying off a smaller number of workers.5
Work sharing has a decades-long history in the United States. For example, in the early 1930s,
President Hoover encouraged employers to reduce employees’ hours instead of laying them off.
In 1932, the President’s Organization on Unemployment Relief issued a report that concluded,
“Reduction in the working time is the principal method of spreading employment” through such
means as reduced days per week, reduced hours per day, or rotating time off. 6
The basic outlines of STC programs are similar among the 17 states that have implemented STC.
To ensure that employees in a work sharing arrangement receive STC, an employer develops a
formal work sharing plan and submits it for approval to the relevant state agency. The employer
certifies to the state agency that the reduction in work hours is in lieu of temporary layoffs. If the
workforce is covered by a collective bargaining agreement then states generally require that the
relevant union(s) consent to the employer’s plan. In a typical program, workers will retain their
employer-provided health and retirement benefits as if they continued to work a full week.
Many of these programmatic elements are not required by the 1992 law that permanently
authorized the STC program, as discussed below. Instead, states retain these features from a
temporary STC program that Congress authorized from 1982 to 1985. USDOL oversees the STC
program as part of the larger federal-state unemployment program.
In the example above, workers’ STC benefits would be 20% of the unemployment benefit they
would have been entitled to had they been laid off. As unemployment benefits generally replace
about half of a worker’s wages (with variation among states)7, STC benefits for a worker who has
experienced a 20% reduction in hours would amount to about 10% of the worker’s wages before
the reduction in hours. Employees would therefore receive a combined income of about 90% of
their full-time wages as compensation for four days of work: 80% as wages plus 10% as STC.
All states require eligible STC beneficiaries to have had their workweeks reduced by 10% or
more. Eligible employees are not required to meet the “able and available for work” requirement
of regular unemployment compensation, but they must be available for their normal workweek.
Finally, eligible employees may participate in an employer-sponsored training program.
Currently, only 17 states operate STC programs. These states are Arizona, Arkansas, California,
Connecticut, Florida, Iowa, Kansas, Maryland, Massachusetts, Minnesota, Missouri, New York,
Oregon, Rhode Island, Texas, Vermont, and Washington. A description of STC programs in the 17
states that currently operate them can be found in the Appendix. 8
5
Work sharing should be distinguished from “job sharing,” which usually involves splitting a single position among
two or more part-time workers.
6
William J. Barrett, Spreading Work: Methods and Plans in Use, The President’s Organization on Unemployment
Relief, Washington, DC, April 1932.
7
U.S. Department of Labor, Unemployment Insurance Chartbook, Replacement Rates, U.S. Average,
http://www.doleta.gov/unemploy/chartbook.cfm.
8
North Dakota enacted a one-year STC demonstration project in 2006 but did not implement it and the program
expired. Illinois enacted STC in 1983, but the law expired in 1988. Louisiana enacted the program in 1986, but no
longer implements it because Louisiana’s requirements for weekly reporting on hours worked and vacation time were
found to be administratively expensive.
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STC benefits are financed the same way that regular unemployment benefits are financed (i.e.,
through state unemployment taxes on employers). An employer’s unemployment tax rate is
determined from a schedule of possible rates depending on the firm’s experience with
unemployment, including STC. This is known as “experience rating.” Seven states impose
supplemental tax provisions on STC employers to ensure that employers who already pay the
maximum state unemployment tax rate also pay their share of the cost of STC benefits. By taxing
STC employers based on their experience with STC in addition to regular unemployment, states
ensure that the cost of STC is not passed on to non-STC firms.
Short-Time Compensation Versus Partial Unemployment Benefits
The federal-state unemployment system also permits payment of “partial unemployment benefits”
to a worker whose hours have been reduced significantly or to an unemployed worker who has
accepted a part-time job while searching for a permanent, full-time job. To qualify for partial
unemployment benefits, however, a worker must generally experience a significant reduction in
work hours and pay.
States provide partial unemployment benefits to part-time workers who are earning less than their
weekly benefit amount (which is based on previous earnings). States reduce a worker’s
unemployment benefit by the amount of earnings from work, usually less a small disregard such
as $25 or $100 of earnings per week, with the result that a person receives no benefit if he or she
has part-time earnings greater than the benefit amount. Unemployment benefits generally replace
about 50% of wages, up to a cap. As a result, in order to qualify for partial unemployment
benefits a worker generally must have experienced a reduction of 50% or more in his or her
normal hours. For higher-income employees this may translate into even deeper cuts in work
hours.
Partial unemployment benefits may help employees whose hours are reduced by 50% or more,
but they offer little incentive for employees to accept voluntarily a smaller reduction in work
hours. By comparison, most state STC programs cap work hour reductions under a qualified work
sharing plan at 40% or 50%. STC benefits are available to employees whose work hours have
been cut by as little as 10% and are not reduced to offset work earnings.
Program Reach and Beneficiaries
Two-thirds of states (33 states and territories) do not have STC programs, and employers in many
states that do have the program make limited use of it. Since 1982From 1982 through 2008, the ratio of STC beneficiaries
beneficiaries to regular unemployment compensation beneficiaries among all states has never
exceeded about
1%, as shown in Table 1. 1%, as shown in Table 1. Very preliminary data indicate that this ratio may have
risen to over 2% during the first three quarters of 2009.
Use of STC is highly countercyclical to business conditions; this is because employers are more
likely to be interested in work sharing when they need to manage labor costs in the face of
relatively low demand for their products. As shown in Table 1, participation in the STC program
peaked—both in terms of the number of STC beneficiaries and in terms of the ratio of STC
beneficiaries to regular unemployment compensation beneficiaries—in 1992, 2001, and 2008.
2008 and
2009 (preliminary). These local peaks correspond with the recessions of July 1990 to March
1991, March 2001 to
November 2001, and again with the recession that began in December 2007. Almost 98,000
workers received STC in 1992, just over 111,000 workers received STC benefits in 2001, and
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about 96,000 workers received STC benefits in 2008. The number of STC beneficiaries often
rises near or following the end
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Almost 98,000 workers received STC in 1992 and about 96,000 workers received STC benefits in
2008. Very preliminary data indicate that STC beneficiaries numbered 258,000 from January
through September, 2009. The number of STC beneficiaries often rises near or following the end
of a recession, as employers regain confidence in the economy. 9
Table 1. Short-Time Compensation (STC) and Regular Unemployment Insurance
(UI) Beneficiaries, 1982 to 20082009
Year
STC Beneficiaries
Regular UI
Beneficiaries
STC Beneficiaries as Percentage
of Regular UI Beneficiaries
1982
2,649
11,648,448
0.02%
1983
1,593
8,907,190
0.02%
1984
3,189
7,742,547
0.04%
1985
4,387
8,363,451
0.05%
1986
12,956
8,360,752
0.15%
1987
23,019
7,203,357
0.32%
1988
25,516
6,860,662
0.37%
1989
32,474
7,368,766
0.44%
1990
44,922
8,628,557
0.52%
1991
94,813
10,074,550
0.94%
1992
97,619
9,243,338
1.06%
1993
65,557
7,884,326
0.83%
1994
53,410
7,959,281
0.67%
1995
45,942
8,035,229
0.57%
1996
41,567
7,995,135
0.52%
1997
32,498
7,325,093
0.44%
1998
47,728
7,341,903
0.65%
1999
36,666
6,967,840
0.53%
2000
32,916
7,035,783
0.47%
2001
111,202
9,868,193
1.13%
2002
93,797
10,092,569
0.93%
2003
83,783
9,935,108
0.84%
2004
42,209
8,368,623
0.50%
2005
40,238
7,917,301
0.51%
2006
39,854
7,350,734
0.54%
2007
48,924
7,652,634
0.64%
2008
96,388
10,052,694
0.96%
2009a
258,082
11,166,737
2.31%
Source: Unemployment Insurance Database, U.S. Department of Labor, Employment and Training
Administration, courtesy of Steve Wandner. Data are from ETA report no. 5–159.
9
Telephone conversation with Steve Wandner, U.S. Department of Labor, June 29, 2009.
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a.
Data for 2009 are for the nine months from January through September, 2009.
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Table 2 shows first payments of STC benefits during selected years from 1997 to 2008 in states
with STC programs (certain non-recession years have been deleted). STC usage varies
significantly among the states with STC programs. In 2008, for example, the ratio of STC
beneficiaries to beneficiaries of regular unemployment compensation ranged from 0.3% in
Florida to 8.1% in Rhode Island.
Table 2. State Legislation and Short-Time Compensation (STC) First Payments As
Percentage of Regular Unemployment Compensation First Payments
Year STC
Program
Enacted
State
Year
1997
2001
2005
0.4%
Arizona
1982
1.7%
4.9%
Arkansas
1985
a
a
California
1978
1.6%
3.2%
Connecticut
1991
0.0%
b
Florida
1983
0.5%
a
Iowa
1991
a
a
Kansas
1988
3.8%
6.0%
Maryland
1984
b
b
Massachusetts
1988
0.2%
1.1%
Minnesota
1994
0.1%
Missouri
1987
New York
2007
a
1.5%
b
0.1%
1.9%
1.7%
0.2%
1.7%
1.8%
2.2%
b
b
0.1%
0.3%
a
a
2.4%
c
b
b
0.4%
0.9%
1.1%
3.4%
0.7%
1.5%
2.2%
2.5%
6.1%
3.8%
4.9%
6.2%
1985
0.8%
2.2%
1.5%
1.3%
1.3%
Oregon
1982
0.1%
1.5%
1.3%
0.9%
1.6%
Rhode Island
1991
1.0%
6.2%
3.9%
4.5%
8.1%
Texas
1985
0.2%
1.1%
1.1%
1.7%
2.2%
Vermont
1985
0.9%
5.5%
5.0%
2.9%
5.0%
Washington
1983
1.0%
2.0%
0.5%
1.0%
2.8%
32,498
111,202
40,238
48,924
96,388
0.4%
1.1%
0.5%
0.6%
1.0%
U.S. total STC first
payments
U.S. total STC
beneficiaries as
percentage of total
regular unemployment
insurance beneficiaries
a
2008
2.1%
b
Source: Unemployment Insurance Database, U.S. Department of Labor, Employment and Training
Administration, courtesy of Steve Wandner. Data are from ETA report no. 5–159.
a.
State continues to have an STC program but has stopped reporting on it or did not report on it in this year.
b.
State reports other STC activity, but generally does not report STC first payments.
c.
Not available.
In 2008 and 2009, Rhode Island used STC to a greater extent than other states, as noted above. This is
largely due to the fact that Rhode Island promotes STC much more aggressively than other states,
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by suggesting STC to companies that are engaged in layoffs and by publicizing STC in
newspapers.10 A broad range of firms are using STC in Rhode Island in 2009. These firms include
banks, mortgage brokers, car dealerships, manufacturing companies, law firms, and doctors’
offices.11
A . Rhode Island’s
STC beneficiaries during the first three quarters of 2009 may represent over 15% of all
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beneficiaries of regular unemployment benefits.9 This is largely due to the fact that Rhode Island
promotes STC much more aggressively than other states, by suggesting STC to companies that
are engaged in layoffs and by publicizing STC in newspapers.10 A broad range of firms are using
STC in Rhode Island in 2009. These firms include banks, mortgage brokers, car dealerships,
manufacturing companies, law firms, and doctors’ offices. 11
A rough way to measure the number of job losses prevented by STC is to adjust data on STC
benefit receipt for both the number of participating workers and the reduction in their hours. For
example, five workers applying for STC whose hours are reduced by 20% each would be reported
as one job “saved.” Table 3 shows Department of Labor estimates of the number of jobs saved
through STC programs in 2008 and during the period from January through October, 2009.
Table 3. Approximate Number of Jobs “Saved” by Short-Time Compensation
2008
January through October 2009
540
1,690
18,391
44,818
Connecticut
399
4,277
Florida
325
1,339
-
3,651
7,021
7,996
Massachusetts
545
3,766
Maryland
513
998
Minnesota
1,460
4,433
Missouri
2,788
4,585
New York
2,689
13,077
Oregon
1,144
2,870
Rhode Island
2,896
5,840
Texas
12,536
24,146
869
2,016
Washington
5,985
21,655
TOTALS
58,101
147,157
Arizona
California
Iowa
Kansas
Vermont
Source: Data provided by the Department of Labor, Employment and Training Administration, November 22,
2009.
Note: The figures in this table are derived from data on initial claims for STC, due to limitations that prevent the
use of first payments data for this purpose. STC initial claims data differ from STC first payments data because
not all initial claims are approved.
9
Communication from Steve Wandner, U.S. Department of Labor, November 30, 2009.
10
Telephone conversations with Steve Wandner, U.S. Department of Labor, June 28, 2009, and Ray Filippone, Rhode
Island Department of Labor and Training, June 30, 2009.
11
Benjamin N. Gedan, “WorkShare Helping Workers and Employers,” The Providence Journal, May 22, 2009.
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A 2002 study (hereafter, MaCurdy, et al.) in California, the largest (numerically) user of STC,
found that manufacturing firms were more likely than other firms to use STC. Manufacturing
firms accounted for only 11% of firms generating unemployment benefits of all kinds but they
accounted for 62% of STC firms. Wholesale trade was the other sector more likely than average
to use STC. Firms that used STC were more likely than non-users to be older and largergenerally older and larger than non-STC users. The
average employment in STC firms was 239, compared to average employment of only 40
workers in firms that generated UI charges through layoffs in 2002. Older and larger firms were
also more likely to have human resources departments to assist with implementing STC.12 In
Connecticut in 2009, manufacturing firms were more likely than other firms to use STC.13
An interesting finding in the California study is that STC firms often have jobs that require
lengthy apprenticeships or on-the-job training programs in which workers learn skills not taught
in school. Within the manufacturing sector, the industries that used STC the most were
manufacturers of electronics, industrial machinery, fabricated metals, instruments, furniture,
primary metals, leather, rubber and plastics, and paper products. Within the construction sector,
STC firms were more likely than other construction firms to be “specialty trades contractors”
such as plumbers and electricians.
Benefits and Concerns
A firm’s decision to seek STC as part of a work sharing arrangement hinges on a number of
factors, not just the benefits and concerns about STC but also whether work sharing itself is
appropriate for a firm and its employees. The low usage rate of STC, even in states that offer the
program, may be due in part to the fact that work sharing itself is not appropriate for all firms or
all employees.
State Governments and State Unemployment Trust Funds
Work sharing programs in combination with STC can provide macroeconomic benefits to a state
by preserving jobs during cyclical downturns, maintaining consumption through continued wages
and STC, and ensuring the continuation of employer-sponsored health insurance and pensions
thereby reducing reliance on state-provided services and supports. As is well known, widespread
unemployment leads to lower consumer spending and sales tax revenues. In addition, state
employment services realize savings through work sharing because they are not called on to
provide job search and other assistance. In 2002, the National Governors’ Association promoted
STC as one of a number of “best practices” for assisting workers in an economic downturn.13
10
Telephone conversations with Steve Wandner, U.S. Department of Labor, June 28, 2009, and Ray Filippone, Rhode
Island Department of Labor and Training, June 30, 2009.
11
Benjamin N. Gedan, “WorkShare Helping Workers and Employers,” The Providence Journal, May 22, 2009.
12
Thomas MaCurdy, James Pearce, and Richard Kihlthau, “An Alternative to Layoffs: Work Sharing Unemployment
Insurance,” California Policy Review, August 2004.
13
Neil Ridley, Assisting Laid-off Workers in a Changing Economy, National Governors Association, Center for Best
(continued...)
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The administrative costs of STC programs have been a concern for state labor agencies. In many
states, STC is still paper-based and states approve employers’ work sharing plans on a case-bycase basis. In addition, STC may increase processing costs for the state agency relative to layoffs
14
The administrative costs of STC programs have been a concern for state labor agencies. In many
states, STC is still paper-based and states approve employers’ work sharing plans on a case-bycase basis. In addition, STC may increase processing costs for the state agency relative to layoffs
12
Thomas MaCurdy, James Pearce, and Richard Kihlthau, “An Alternative to Layoffs: Work Sharing Unemployment
Insurance,” California Policy Review, August 2004.
13
George M. Wentworth, “The Connecticut Shared Work Program and the Future of Short-time Compensation,”
presentation to the U.S. Department of Labor’s conference on “Recovery and Reemployment Research,” Washington,
DC, September 16, 2009.
14
Neil Ridley, Assisting Laid-off Workers in a Changing Economy, National Governors Association, Center for Best
Practices, February 26, 2002.
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because, for a given firm, work sharing affects a larger number of workers than if the firm were to
lay off workers.1415 Some suggest that states would experience at least partially offsetting savings
as a result of not having to administer certain components of the regular unemployment system,
such as the requirements that a worker be actively seeking work and that he or she not refuse
suitable work. No studies have attempted to quantify STC’s net administrative cost to states,
however.
Some states have responded to high administrative costs by reducing the layers of approval for
plan submissions, by automating the claims process and by switching from employee-filed claims
to employer-filed claims. States that have developed strategies to automate STC filing, approval,
and ongoing claims have been able to reduce administrative costs, according to a study by
Berkeley Planning Associates and Mathematica Policy Research, Inc. (hereafter, Berkeley
Planning Associates and Mathematica).1516 Massachusetts has gone the furthest by fully automating
its STC program in 2001 and 2002. The system is Internet-based and employers use it to submit
their work sharing plans and their weekly STC transactions. Massachusetts has offered to make
its software available at no cost to other states.
The impact of STC benefits on the solvency of state unemployment programs, as reflected in the
balance of state unemployment trust funds,1617 is probably small. The immediate impact is negative
as STC benefit payments increase with the onset of a recession. Increased state unemployment
tax receipts respond with a lag. STC benefits are experience-rated17rated18 in approximately the same
manner as regular unemployment benefits. As a result, the study by Berkeley Planning Associates
and Mathematica concluded that the long-run effect on a state’s trust fund, relative to layoffs, is
probably minimal, although the impact could potentially be more serious if STC participation
rates were very high and tax schedules were constrained.
(...continued)
Practices, February 26, 2002.
14
When STC was first implemented in the late 1970s and 1980s, proponents argued that it would
promote work sharing and thereby help protect the gains made by affirmative action. Because
women and minorities were newer to the workforce, they were more vulnerable to layoffs than
workers with seniority. However, the 1997 study by Berkeley Planning Associates and
Mathematica found no evidence that STC disproportionately benefits ethnic or racial minorities,
15
STC is provided to a relatively larger number of work sharing employees, and 100% of these would be expected to
qualify for STC. By contrast, laying off a smaller number of employees results in fewer initial claims for regular
unemployment benefits and ultimately in even fewer beneficiaries, because some of those laid off are likely to fail
eligibility tests. For example, newer workers, who are more vulnerable in layoffs, are more likely to fail requirements
for regular unemployment benefits that are related to wages earned in the base period. A worker’s “base period” is the
time period over which his wages earned and hours/weeks worked are examined to determine his monthly
unemployment insurance benefit. In most states, the base period is the first four of the last five completed calendar
quarters preceding the filing of the claim.
1516
Berkeley Planning Associates and Mathematica Policy Research, Inc., Evaluation of Short-Time Compensation
Programs: Final Report, U.S. Department of Labor, Employment and Training Administration, Washington, DC,
March 1997.
1617
For more information on how states’ unemployment trust funds are used to fund unemployment benefits, see CRS
Report RS22077, Unemployment Compensation (UC) and the Unemployment Trust Fund (UTF): Funding UC Benefits,
by Julie M. Whittaker and Kathleen Romig.
1718
All states use a system called “experience rating” to relate an employer’s state unemployment tax rate to its
experience with the payment of unemployment benefits to former workers. For more information, see CRS Report
RL33362, Unemployment Insurance: Available Unemployment Benefits and Legislative Activity, by Julie M. Whittaker
and Alison M. Shelton.
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Unemployment Compensation: Short-Time Compensation and Work Sharing
When STC was first implemented in the late 1970s and 1980s, proponents argued that it would
promote work sharing and thereby help protect the gains made by affirmative action. Because
women and minorities were newer to the workforce, they were more vulnerable to layoffs than
workers with seniority. However, the 1997 study by Berkeley Planning Associates and
Mathematica found no evidence that STC disproportionately benefits ethnic or racial minorities,
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Work Sharing Arrangements (Short-Time Compensation) as an Alternative to Layoffs
or women, although it is still possible that the program could help entry-level and newer workers
in general.
Employers
For employers, the decision between layoffs and an arrangement combining work sharing with
STC may rest on both financial and non-quantifiable factors such as employee morale. Some
firms may find that the combination of work sharing and STC helps reduce total costs during a
downturn; however, other firms may find that layoffs are more cost-effective.
Immediate cost savings to employers under a work sharing/STC arrangement come largely from
reduced expenditures on wages and salaries. If a work sharing arrangement that involves all
employees is the alternative to laying off low-seniority (and generally lower paid) employees then
STC would presumably save the employer more in wages.
Work sharing and STC arrangements can also reduce recruitment and training costs for
employers. When business improves, employers can increase the hours of existing employees
rather than recruit and train new ones.
Some employers find work sharing and STC programs attractive because they prevent the firm
from losing skilled employees during an economic downturn and reduce the risk that skilled
employees may leave for other companies. According to the MaCurdy et al. study of STC in
California, employees of STC firms tended to be older and better paid than workers collecting
regular unemployment benefits, suggesting that employers were using STC to retain highly
skilled workers. Some employers use work sharing and STC to protect specific groups of highly
skilled workers within a larger organization that is undergoing layoffs. For example, New York
state’s STC program allows employers to apply different percentage reductions to hours and
wages in different departments, and STC may be implemented at the level of one or more
departments, shifts, or units. Berkeley Planning Associates and Mathematica, as part of their 1997
study of STC, surveyed 500 employers who used work sharing in combination with STC and
found that the ability to retain valued employees was a major attraction.
Most employers who used the STC program reported that they were satisfied and would use it
again, according to the same 1997 survey. In fact, many firms used STC repeatedly, with some
firms using it in every quarter over a three-year period.
Work sharing and STC arrangements may help sustain employee morale and productivity
compared to layoffs. Even employees who survive a layoff may be vulnerable to “survivor’s
guilt” and emotional contagion (picking up on the despair of laid-off employees) that can reduce
productivity.18
18
Barbara Kiviat, “After Layoffs, There’s Survivor’s Guilt,” Time, February 1, 2009.
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19
The most frequent complaint found in the survey conducted by Berkeley Planning Associates and
Mathematica was that firms’ state unemployment taxes increased following use of the STC
program. In the survey, firms using STC experienced higher unemployment insurance (UI)
charges compared to firms that had not used STC. The STC firms, however, also continued to lay
19
Barbara Kiviat, “After Layoffs, There’s Survivor’s Guilt,” Time, February 1, 2009.
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off workers. One interpretation offered by the survey’s authors is that STC firms were
experiencing greater economic distress than similar non-participating firms.
In states where STC is charged to the firm according to the experience rating rules of the regular
unemployment program, the firm incurs no more in UI tax costs by using STC than it would
through layoffs. For example, MaCurdy, et al. wrote about California’s STC system that “it does
not matter for UI tax calculations whether a firm generates $1,000 in UI benefits through work
sharing or layoffs.” Seven states also impose additional tax provisions on work sharing
employers, in order to ensure that employers who already pay the maximum state unemployment
tax rate share in the burden. According to the Berkeley Planning Associates and Mathematica
study of STC, states appear to experience-rate STC claims at least as well as regular
unemployment compensation claims.
Certain nonprofit organizations, state and local governments, and federally recognized Indian
tribes are permitted to reimburse their state unemployment funds for unemployment benefit
payments attributable to service in their employ, instead of contributing taxes to the state’s trust
fund. Most state laws provide that reimbursing employers will be billed at the end of each
calendar quarter, or another period, for benefits paid during that period. For these “reimbursing”
employers, STC is not a cost-effective option.
There likely are several reasons why most reductions in hours take the form of layoffs rather than
shorter work schedules. Employers’ lack of awareness of STC has been cited as one reason for
low employer participation. In addition, production technologies may make it expensive or
impossible to shorten the work week. This is the case in some manufacturing industries, for
example, where the costs of shutting down and starting up equipment are high.1920 Moreover, a
work sharing arrangement may not reduce total costs to employers in exact proportion to the
reduction in work hours. Some non-wage employment costs—referred to as “quasi-fixed” costs—
are largely independent of the number of hours worked. Health and pension benefits are among
those that fall into this category. 2021 Because most state STC programs require employers to
maintain health insurance and pension benefits during the period of the work sharing arrangement
as though employees still worked full time, STC firms continue to bear the full (rather than the
pro-rated) costs of the two benefits.
Employees
Work sharing helps workers who would have faced layoffs avoid significant hardship, while
spreading more moderate earnings reductions across more working individuals and families.
When work sharing is combined with STC, the income loss to work sharing employees is
reduced. Many state STC programs also require that employers continue to provide health
insurance and retirement benefits to work sharing employees as if they were working a full
schedule.
Some employees are simply happy to have any job in a tough labor market. One worker who
received STC in 2009 in conjunction with a work sharing arrangement told a Rhode Island
newspaper, “Versus being totally unemployed, it’s a big plus. There aren’t any jobs out there.”21
19
20
For a more complete analysis, see David M. Lilien and Robert E. Hall, “Cyclical Fluctuations in the Labor Market,”
in Handbook of Labor Economics, ed. O. Ashenfelter and R. Layard, vol. 2 (Elsevier Science Publishers, 1986), pp.
1001-1035.
2021
For more information on and examples of quasi-fixed labor costs, see CRS Report 97-884, Longer Overtime Hours:
The Effect of the Rise in Benefit Costs, by Linda Levine.
21
Benjamin N. Gedan, “WorkShare Helping Workers and Employers,” The Providence Journal, May 22, 2009.
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Some employees are simply happy to have any job in a tough labor market. One worker who
received STC in 2009 in conjunction with a work sharing arrangement told a Rhode Island
newspaper, “Versus being totally unemployed, it’s a big plus. There aren’t any jobs out there.”22
Analysts have suggested that work sharing could shift the impact of an economic downturn from
younger workers to older workers because it spreads the pain of a workforce reduction among
workers of all ages. Younger employees, who are often the first to be fired in a downturn,
presumably have the most to gain by work sharing combined with STC. More experienced and
more highly paid workers would presumably have the most to lose, particularly in firms where
jobs are protected by seniority. Consequently, employees with seniority may oppose a program
that shares reductions across the labor force.2223
Some research suggests that reduced work hours may have different implications for professional
employees compared to hourly workers. Professional employees sometimes welcome a better
work-life balance, while in some cases hourly workers rely not just on a full work schedule but
also on overtime in order to make ends meet. 2324
When STC was introduced in the 1970s and 1980s, labor groups warned that safeguards were
necessary to avoid reducing workers’ health insurance and pensions. One concern had been that
reduced work hours and pay could result in smaller contributions to pension plans. Traditional
defined benefit pension plans generally calculate benefits based in part on a worker’s high three
or high five earnings years, so that workers close to retirement could be directly affected by a
reduction in work hours and pay. As will be discussed below, Congress included protections for
health and pension benefits when it authorized a temporary STC program from 1982 to 1985.
These concerns seem to have died down during the 1980s,2425 however, and Congress did not
include health or pension safeguards when it passed a permanent law authorizing STC in 1992.
An argument can be made that, in declining industries, work sharing and STC arrangements may
cause some workers to delay serious job searches or retraining efforts. The relative advantages
and disadvantages for an individual will depend in part on his or her particular skill set. STC
cannot forestall what may be an inevitable layoff, however.
Legislative History and Current Issues
It is sometimes said that states are laboratories for policy, and the history of STC appears to bear
this out. Following the recession of 1973-1975, state governments, businesses, and labor groups
began to promote work sharing arrangements that included government-provided income support.
New York was the first state to consider STC legislation, in 1975, as part of a broader
employment policy bill. The legislation died in committee.
In 1978, California became the first state to enact an STC law. California’s action was in response
to anticipated large-scale public sector layoffs arising from Proposition 13 tax reductions that
limited state spending. Although the public sector layoffs never occurred, the private sector used
the program. California was followed by Arizona in 1981. Oregon enacted STC legislation in
22
22
Benjamin N. Gedan, “WorkShare Helping Workers and Employers,” The Providence Journal, May 22, 2009.
Workers in a few industries that pay “supplemental” unemployment benefits may also oppose work sharing
arrangements. These supplemental benefits, when combined with reduced earnings, may provide a greater total benefit
to somebody who is completely unemployed than a work sharing arrangement that combines reduced pay with STC.
2324
Brenda A. Lautsch and Maureen A. Scully, “Restructuring Time: Implications of Work-hours Reductions for the
Working Class,” Human Relations, May 2007; volume 60, number 5.
2425
Telephone conversation with Steve Wandner, U.S. Department of Labor, June 22, 2009.
23
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Work Sharing Arrangements (Short-Time Compensation) as an Alternative to Layoffs
In 1978, California became the first state to enact an STC law. California’s action was in response
to anticipated large-scale public sector layoffs arising from Proposition 13 tax reductions that
limited state spending. Although the public sector layoffs never occurred, the private sector used
the program. California was followed by Arizona in 1981. Oregon enacted STC legislation in
1982, with strong support from the Motorola Corporation. During this period of state innovation,
DOL did not challenge states’ STC programs, although federal unemployment compensation law
did not explicitly allow states to use their unemployment trust funds to pay STC.
The federal government introduced a temporary, national STC program in 1982 with the Tax
Equity and Fiscal Responsibility Act (TEFRA, P.L. 97-248). Motorola and the Committee for
Economic Development25Development26 both lobbied in Washington for the legislation. The American
Federation of Labor and Congress of Industrial Organizations (AFL-CIO), after some initial
opposition, came to support STC provided that safeguards were incorporated to protect pension
and health insurance benefits and to secure union certification for employers’ work sharing plans.
TEFRA, which expired in 1985 after three years, authorized states to use monies in their state
accounts in the Unemployment Trust Fund to pay STC benefits to eligible employees whose work
hours had been reduced by at least 10% under a qualified employer work sharing plan. 2627 The law
required the employer to draw up a formal work sharing plan and to seek the relevant state
agency’s approval of the plan as well as certification by the relevant union(s) if applicable.
TEFRA also provided that employees who received STC benefits would not be required to meet a
state’s work search and refusal of suitable work requirements for unemployment benefits.
Employees would, however, be required to be available to work a normal work week. TEFRA
required employers to continue to provide health and pension benefits to employees whose
workweek was reduced as if the employees worked their normal hours. The act required that
employers who used STC be charged in the same manner as other UI taxes, in order to ensure that
STC costs were paid by participating employers instead of being passed on to other employers.
TEFRA directed the Secretary of Labor to develop model STC legislation for use by the states
and also to provide technical assistance to states. Finally, P.L. 97-248 directed the Secretary of
Labor to submit a final report evaluating the program and making recommendations.
DOL published model state legislative language and guidelines in July 1983. During TEFRA’s
three-year experimental period, eight additional states enacted STC programs.
Following the expiration of the three-year temporary program in 1985, the existing state programs
continued. DOL stopped promoting STC when its mandate to act expired with the end of the
temporary federal law. However, DOL did not curtail the program’s operation in existing states,
nor did it stop seven new states from adopting the program. DOL allowed states to use the
expired 1983 federal guidance and continued to collect reporting data on STC programs in the
states.
The recession of 1990-1991 renewed attention to STC, leading Congress to enact permanent STC
legislation, the Unemployment Compensation Amendments of 1992 (UCA, P.L. 102-318). The
1992 law amended the Internal Revenue Code27 to authorize states to pay STC benefits from their
accounts in the Unemployment Trust Fund. UCA essentially consists of a five-point definition of
STC as a program under which (1) individuals’ workweeks have been reduced by at least 10%;
(2) STC is paid as a pro rata portion of the full unemployment benefit that an individual would
25
26
The Committee for Economic Development is a non-profit, business-led organization that has addressed economic
and social issues since 1942.
26
27
States pay unemployment benefits from state accounts in the Unemployment Trust Funds. These funds cannot be
used by a state for any purpose other than the payment of unemployment benefits, with certain exceptions including
short-time compensation.
27
26 U.S.C. § 3304.
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Work Sharing Arrangements (Short-Time Compensation) as an Alternative to Layoffs
1992 law amended the Internal Revenue Code28 to authorize states to pay STC benefits from their
accounts in the Unemployment Trust Fund. UCA essentially consists of a five-point definition of
STC as a program under which (1) individuals’ workweeks have been reduced by at least 10%;
(2) STC is paid as a pro rata portion of the full unemployment benefit that an individual would
have received if totally unemployed; (3) STC beneficiaries are not required to meet availability
for work and work search requirements, unlike beneficiaries of regular unemployment
compensation, but they are required to be available for their normal work week; (4) STC
beneficiaries may participate in employer-sponsored training programs; and (5) the reduction in
work hours is in lieu of layoffs. UCA also directed the Secretary of Labor to assist states in
establishing and implementing STC programs by developing model legislative language and
providing technical assistance and guidance to the states. Finally, UCA directed DOL to report on
implementation of the STC program.
UCA does not contain the employee and employer safeguards that had been present in TEFRA. In
particular, UCA does not require employers to do the following: submit work sharing plans to the
state for approval; certify to the relevant state agency that the reduction in work hours is in lieu of
temporary layoffs; win consent from the relevant union(s); or contribute to health insurance or
pension plans as if the employee continued to be fully employed. UCA also does not contain the
TEFRA provision that STC be charged to employers “in a manner consistent with the State law”
for the purposes of determining state unemployment taxes on employers (P.L. 97-248 §194(e)).
Finally, UCA did not give the U.S. Secretary of Labor the ability to determine what program
elements would be appropriate beyond the 1992 law’s five definitional items. These provisions
were removed by committee staff in order to give states more flexibility.2829
Since 1992, DOL has sidestepped implementation of STC, neither developing new model state
legislative language nor providing new guidance to the states. DOL did, however, support a study
of the program (the 1997 study by Berkeley Planning Associates and Mathematica).
Shortly after enactment of the 1992 law, DOL and Clinton Administration officials claimed the
permanent federal law was “unworkable,” according to an article by David E. Balducchi and
Steven Wandner (hereafter, Balducchi and Wandner).2930 At the time, government officials argued
that the 1992 law was restrictive in application and would have put many existing state STC
programs out of compliance. For example, Clinton Administration and DOL officials were
concerned that existing state provisions requiring employers to continue to provide health and
pension benefits were out of compliance with UCA’s definition of STC, and DOL would need to
require states to roll back these provisions. 3031
As a result, DOL has remained silent about STC programs in the states, neither encouraging
program participation nor issuing guidance. DOL has not, however, challenged state programs
that retain provisions from the 1982 temporary law, and it continues to collect state STC program
reports. Since 1992, one additional state (Minnesota) has enacted and implemented STC
legislation.
Since 1992, several attempts have been made in Congress to introduce legislation to address these
concerns. In 1994, during the 103rd Congress, H.R. 4040 would have reintroduced much of the
1982 TEFRA language into permanent law, although it departed from TEFRA language in
allowing state agencies to determine whether to require employers to submit formal work sharing
plans or to continue to provide full health and retirement benefits. H.R. 4040 also would have
28
Telephone conversation with Rich Hobbie, National Association of State Workforce Agencies, June 24, 2009.
29
David E. Balducchi and Stephen A. Wandner, “Work Sharing Policy: Power Sharing and Stalemate in American
Federalism,” Publius: The Journal of Federalism, Winter 2008, p. 21.
30
Telephone conversation with David Balducchi, U.S. Department of Labor, June 24, 2009.
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28
29
26 U.S.C. § 3304.
Telephone conversation with Rich Hobbie, National Association of State Workforce Agencies, June 24, 2009.
30
David E. Balducchi and Stephen A. Wandner, “Work Sharing Policy: Power Sharing and Stalemate in American
Federalism,” Publius: The Journal of Federalism, Winter 2008, p. 21.
31
Telephone conversation with David Balducchi, U.S. Department of Labor, June 24, 2009.
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Since 1992, several attempts have been made in Congress to introduce legislation to address these
concerns. In 1994, during the 103rd Congress, H.R. 4040 would have reintroduced much of the
1982 TEFRA language into permanent law, although it departed from TEFRA language in
allowing state agencies to determine whether to require employers to submit formal work sharing
plans or to continue to provide full health and retirement benefits. H.R. 4040 also would have
given the U.S. Secretary of Labor broad authority to determine “such other requirements” as
might be appropriate. Also in 1994, S. 1951 would have modified UCA’s essentially definitional
approach by expanding the definition of STC to include, at states’ option, employer submission of
a written plan and/or continued provision of full health and retirement benefits. S. 1951 also
would have given broad authority to the U.S. Secretary of Labor to determine other program
requirements. Since 1994, bills to modify the STC program have followed very closely the
approach taken by S. 1951: these subsequent bills include H.R. 1789 in the 104th Congress
(1995), H.R. 3697 in the 105th Congress (1998), H.R. 1830 in the 106th Congress (1999), H.R.
2962 in the 107th Congress (2001), and H.R. 5418 in the 107th Congress (2002). All bills that
addressed STC have died without action.
An advocacy group has proposed that the federal government establish a temporary, federally
managed STC program.3132 Under the group’s proposal the federal government would temporarily
fund STC in states that operate STC programs. The federal government would also provide
federal monies to help states administer the increased number of participating employers and
beneficiaries. The advocacy group argues that a temporary federal STC program of this type
might encourage expansion of state STC programs, and would also help relieve pressure on state
unemployment trust funds during the current recession. Other potential enhancements to the
program proposed by the group could include a requirement that STC employers provide
adequate notice to employees about a planned reduction in hours, expansion of the STC program
to part-time workers whose hours have been reduced in lieu of layoffs, and state provision of
training to beneficiaries of STC.
The Center for Economic Policy and Research (CEPR) has proposed a tax credit that is intended
to compensate employers for shortening work hours while keeping compensation unchanged. 33
For employers considering the need to lay off workers, the credit could provide an incentive to
decrease total hours worked instead of laying off employees. For other employers, the CEPR
argues that the tax credit could provide an incentive to hire additional workers to make up for the
reduced hours among the employer’s existing workforce. There is some risk of employers gaming
the tax credit system; this risk could be reduced by requiring that the workforce adjustment be
made relative to a well-defined base period or that employers post any workforce reductions for
the credit on a website.
International Experience
Over 20 countries have formal work sharing programs. Not all of these programs provide
compensation to work sharing employees, however.
32
Neil Ridley, Work Sharing - an Alternative to Layoffs for Tough Times, Center for Law and Social Policy (CLASP),
March 26, 2009.
33
Dean Baker, Job Sharing: Tax Credits to Prevent Layoffs and Stimulate Employment, Center for Economic Policy
and Research, Issue Brief, Washington, DC, October 2009, http://www.cepr.net/documents/publications/job-sharingtax-credit-2009-10.pdf.
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Canada has had a work sharing program since 1977, which is available to firms with drop in
orders or sales of 10% or more who can demonstrate that the work-hour reduction is temporary
and unavoidable. Canadian work sharing employees receive a pro-rata share of regular
employment benefits (the equivalent of U.S. unemployment benefits) for work sharing hours.
Compensated work sharing was extended to 52 weeks in April 2010. As of September 2009,
about 6,000 Canadian companies, and about 105,000 Canadian workers, participated in work
sharing arrangements.
France’s chômage partiel (partial unemployment) program provides partial wage compensation
equal to 75% (effective from April 2009) of the affected workers’ gross wages for up to six
weeks. Chômage partiel is paid directly by employers to employees along with regular wages. In
turn, employers receive a fixed subsidy per employee hour of work sharing (€3.84 per hour for
firms with 250 employees or less and €3.33 per hour for firms with more than 250 employees).
These subsidies are exempt from some, although not all, social insurance contributions. 34
Korea has experienced rapid growth in work sharing during 2009 as a result of a range of
measures. The Republic of Korea offers subsidies to companies that adopt work sharing
programs, tax cuts, reductions in contributions to social security schemes, and support for training
and workplace innovation programs.35
Germany’s work sharing program (Kurzarbeit) is the largest in the world, with 1.4 million
workers participating in mid-2009. Compensated work sharing is available in response to a drop
in work hours of at least 10% (the average reduction in work hours has been about 30% in the
German work sharing system). Germany provides an STC allowance of 60% of foregone wages
(67% if the worker’s household includes a child), for periods of short-time work of up to 24
months. Employers’ social insurance contributions are reduced when their STC employees
participate in training or qualification programs. Germany credits its compensated work sharing
program with preventing 432,000 job losses through October 2009 and with holding down
growth in the national unemployment rate.
The Fair Labor Standards Act and Overtime Pay for
Salaried Employees
Work sharing programs may include both wage and salaried workers. Some employers have
expressed concern that reducing the hours of certain salaried workers could put their exemption
from overtime pay into question. Section 13(a)(1) of the Fair Labor Standards Act (FLSA)
provides an exemption from overtime pay for executive, administrative, professional, and certain
computer and outside sales employees. To qualify for the exemption, these employees must be
paid on a salary basis at not less than $455 per week. 36 A work sharing agreement that caused
affected salaried employees’ wages to fall below the $455 weekly figure could affect an
34
Jon C. Messenger, Work Sharing: A Strategy to Preserve Jobs During the Global Jobs Crisis, International Labor
Organization, Travail Policy Brief No. 1, Geneva, Switzerland, June 2009.
35
Jon C. Messenger, Work Sharing: A Strategy to Preserve Jobs During the Global Jobs Crisis, International Labor
Organization, Travail Policy Brief No. 1, Geneva, Switzerland, June 2009.
36
For more information on the Fair Labor Standards Act and overtime for salaried employees, see the following Fact
Sheet from the U.S. Department of Labor, at http://www.dol.gov/whd/regs/compliance/fairpay/fs17a_overview.htm.
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employee’s exempt status. One approach would be to add a provision to the FLSA clarifying that
a reduction in pay under a state-approved work sharing plan would be permissible and would not
affect an employee’s exempt status under the FLSA.
Recent Legislative Activity
Senator Reed introduced S. 1646, the Keep Americans Working Act, to provide federal financing
to states for 100% of .
Recent Legislative Activity
Senator Reed introduced S. 1646, the Keep Americans Working Act, to provide temporary federal
financing to states for 100% of STC benefits paid to workers for up to 26 weeks, contingent on
employer certification that maintenance of of participation in an STC
program. This financing would be available through end-September 2011, and it would be
contingent on employer certification that health and retirement benefits isare not affected by
participation in the STC program. The bill would also provide start-up grants to states and would
allow the Department of Labor (DOL) to reimburse states for administrative expenses. The bill
would clarify employer and employee protections
under STC programs. The bill would also require DOL to provide technical assistance and
, including requirements
that employers submit a written STC plan for state approval and that appropriate union officials
agree to the plan (if the workforce is represented by a union). DOL would be required to provide
technical assistance and guidance to states, including updating model legislative language.
Concluding Remarks
As noted above, DOL has not issued model state legislation or provided guidance to states since
1992, although it has not challenged state programs. Most states do not actively promote STC
Representative DeLauro has introduced a companion bill, H.R. 4135, in the House of
Representatives.
Senator Reed included STC in S. 2831, the Helping Unemployed Workers Act, which among
other provisions would also extend through 2010 the Emergency Unemployment Compensation
program (EUC08) as well as the supplemental $25 weekly benefit provided under the American
Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5).37 The STC provisions proposed in
S. 2831 are substantially the same as were proposed in S. 1646, with the reimbursement provision
extended through December 31, 2011.
Representative McDermott introduced H.R. 4183, the Helping Unemployment Workers Act,
which would require the Secretary of Labor to pay 100% of STC benefits to the unemployment
trust fund accounts of states whose STC programs have been certified by the Secretary of Labor.
A certified state program must require employers to submit and comply with a written STC plan
that has been approved by the state agency, to demonstrate that health and retirement benefits will
not be affected by the STC program, and to win union consent in the case of employees
represented by a union. Certified state programs would receive a subsidy equal to 100% of the
total amount of STC benefits paid to workers for weeks of unemployment ending on or before
December 31, 2011, as well as reimbursement for administrative expenses.
Representative Conyers introduced H.R. 4179, the SHARE Credit Act of 2009, to establish a
refundable work-sharing tax credit.
Concluding Remarks
As noted above, DOL has not issued model state legislation or provided guidance to states since
1992, although it has not challenged state programs. Most states do not actively promote STC
37
For more information on unemployment insurance provisions in ARRA, see CRS Report R40368, Unemployment
Insurance Provisions in the American Recovery and Reinvestment Act of 2009, by Alison M. Shelton, Kathleen Romig,
and Julie M. Whittaker.
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Work Sharing Arrangements (Short-Time Compensation) as an Alternative to Layoffs
either, with some notable exceptions like Rhode Island. STC is currently only implemented in
one-third (17) of states and in those states it has never reached a large number of workers,
although there is evidence of increased use in 2009. The . The
Balducchi and Wandner study concluded
that, “Federal work sharing [STC] policy is at a
stalemate and dormant until political leaders
elevate the apparent statutory deficiency and either
the executive branch reinterprets federal law
or the Congress passes legislation to address the
policy concerns.”
31
Neil Ridley, Work Sharing - an Alternative to Layoffs for Tough Times, Center for Law and Social Policy (CLASP),
March 26, 2009.
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Unemployment Compensation: Short-Time Compensation and Work Sharing
policy concerns.”
STC is unlikely to ever play a great role in the unemployment compensation system, but there is
room for it to expand. Better marketing of the program in STC states might improve awareness
and use. But this is unlikely to happen unless Congress, or perhaps the executive branch, decides
to take action to break the impasse over interpretation of the 1992 permanent law authorizing
STC.
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Unemployment Compensation: Short-Time Compensation and Work Sharing17
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Work Sharing Arrangements (Short-Time Compensation) as an Alternative to Layoffs
Appendix. State Implementation of Short-Time
Compensation (STC) Programs
Table A-1 displays how STC is implemented in the 17 states that have programs. The basic
program is similar among all states: eligible individuals have had their workweeks reduced by at
least 10% and this reduction in work hours must be in lieu of temporary layoffs. The amount of
unemployment compensation payable to an individual is a pro rata share of the unemployment
compensation to which that individual would have been entitled if he or she had been totally
unemployed. Eligible employees are not required to meet the “able and available for work”
requirement of regular unemployment compensation, but they must be available for their normal
workweek. Finally, eligible employees may participate in an employer-sponsored training
program.
Within these broad outlines there is considerable variation among states. An employer’s plan
cannot exceed a period of 26 weeks in Massachusetts but may span up to two years in Iowa. An
individual may receive STC benefits for up to 20 weeks in New York or for up to 52 weeks in
Minnesota, Rhode Island or Texas. California places no limit on the number of weeks a worker
may receive STC benefits, although there is a cap on total benefits paid to an individual.
California has relaxed the requirement for payment of full health insurance and pension benefits,
making this optional for employers submitting a work sharing plan.
Table A-1. States with Short-Time Compensation Programs
State
Period of
Approved
Plan
Required
Reduction of
Work
Maximum Number
of Weeks Payable
AZ
1 year
At least 10% but
not more than
40%
26 weeks (limitation
does not apply if state
insured unemployment
rate (IUR) for preceding
12 weeks is equal to or
greater than 4%)
AR
12 months or
date in plan,
whichever is
earlier
Not less than
10%, but not
more than 40%
26 weeks
CA
6 months
At least 10%
No limit on weeks, but
total paid cannot
exceed 26 x weekly
benefit amount
CT
6 months
Not less than
20%, but not
more than 40%
26 weeks (with 26 week
extension possible)
FL
12 months
Not less than
10%, but not
more than 40%
26 weeks
IA
24 months
Not less than
20%, but not
more than 50%
26 weeks
Congressional Research Service
Other
Tax rate increases 1% if the
negative reserve ratio is less than
15%; 2% if the negative reserve
ratio is 15% or morea
Plans not required to address
fringe benefits
1% higher max. tax rate; other
part-time employment affects
payment
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Work Sharing Arrangements (Short-Time Compensation) as an Alternative to Layoffs
State
Period of
Approved
Plan
Required
Reduction of
Work
Maximum Number
of Weeks Payable
Other
KS
12 months
Not less than
20%, but not
more than 40%
26 weeks
Automatic exclusion of negative
balance employersa
MD
6 months
At least 10%, not
to exceed 50%
26 weeks
All STC benefits charged to STC
employer regardless of base period
charging ruleb
MA
26 weeks
Not less than
10%, but not
more than 60%
26 weeks
Employers with negative balances
charged as though they were
reimbursers a,c
MN
1 year
At least 20%, but
not more than
40%
52 weeks
MO
12 months
Not less than
20%, but not
more than 40%
26 weeks
Not less than
20%, but not
more than 60%
20 weeks
NY
Work sharing benefits may not be
denied in any week containing a
holiday for which holiday earnings
are committed to be paid by the
employer, unless the work sharing
benefits to be paid are for the
same hours as the holiday earnings
OR
No more than
1 year
At least 20%, but
not more than
40%
26 weeks
If employer’s benefit ratio is
greater than its tax rate, the
employer must reimburse the
excess at the end of each calendar
quarterd
RI
12 months
Not less than
10%, but not
more than 50%
52 weeks
All work sharing benefits charged
to work sharing employer
regardless of base period charging
ruleb
TX
12 months
At least 10%, but
not more than
40%
52 weeks
VT
6 months or
date in plan,
whichever is
earlier
Not less than
20%, but not
more than 50%
26 weeks
WA
12 months or
date in plan,
whichever is
earlier
Not less than
10%, but not
more than 50%
26 weeks
Source: U.S. Department of Labor, Comparison of State Unemployment Insurance Laws, January 2009 (Washington,
DC 2009), pp. 4-8 to 4-9.
a.
All states use a system of “experience rating” to relate a firm’s unemployment tax to its experience with
unemployed workers. The reserve-ratio formula is used by the largest number of states, although other
methods may be used. An employer’s “reserve ratio” is determined by first finding the difference between
the employer’s tax contributions and the dollar amount of benefits paid to former workers, and then
dividing this amount by the employer’s payroll. Unemployment tax rates are assigned according to the
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Unemployment Compensation: Short-Time Compensation and Work Sharing19
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Work Sharing Arrangements (Short-Time Compensation) as an Alternative to Layoffs
state’s schedule of rates for specified ranges of reserve ratios, with positive and higher ratios leading to a
lower tax rate. Lower or negative (if tax contributions are less than benefit payments) ratios lead to higher
tax rates or, in the case of STC, may lead to a surtax or even to disqualification from the state’s STC
program.
b.
For a worker with more than one employer in his or her base period, most states charge regular
unemployment benefits against all base-period employers in proportion to wages earned by the worker
with each employer. A worker’s base period is the time period during which wages earned and/or
hours/weeks worked are examined to determine the amount of unemployment benefits. In most states, a
worker’s base period is the first 4 of the last 5 completed calendar quarters preceding the filing of the claim.
c.
Reimbursing employers, which include certain nonprofit organizations, state and local governments, and
Indian tribes, are allowed to reimburse their state’s unemployment fund instead of making tax contributions.
Most state laws provide that reimbursing employers will be billed at the end of each calendar quarter, or
other period, for benefits paid during the period.
d.
Another form of experience rating, called the “benefit ratio” formula, is determined by dividing
unemployment benefits by the employer’s payroll, without including employer tax contributions in the
formula.
Author Contact Information
Alison M. Shelton
Analyst in Income Security
ashelton@crs.loc.gov, 7-9558
Congressional Research Service
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