Compensated Work Sharing Arrangements
(Short-Time Compensation) as an Alternative
to Layoffs
Alison M. Shelton
Analyst in Income Security
April 23, 2012
The House Ways and Means Committee is making available this version of this Congressional Research Service
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for the United States Congress, providing policy and legal analysis to Committees and Members of both the
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Compensated Work Sharing Arrangements as an Alternative to Layoffs
Summary
Short-time compensation (STC) is a program within the federal-state unemployment
compensation system. In the 23 states, and the District of Columbia, 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.
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 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 many other states still manage much of the STC program on
paper.
Currently, 23 states and the District of Columbia operate STC programs to support work sharing
arrangements. Through the end of 2008, the STC program rarely reached 1% of unemployment
claims paid annually across the United States. This percentage peaked at nearly 3% in 2010. The
reasons for low take-up of the STC program are not completely clear, but key causes would
appear to include the fact that fewer than one half of states have STC programs and ambiguity in
the 1992 federal law that authorized STC.
Congress passed P.L. 112-96 in February 2012 to resolve ambiguities in the definition of STC and
to provide temporary federal funding to states that have existing STC programs or that enter into
an agreement with the U.S. Secretary of Labor.
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Compensated Work Sharing Arrangements 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 ..................................................................................................................... 6
State Governments and State Unemployment Trust Funds ....................................................... 7
Employers.................................................................................................................................. 8
Employees ............................................................................................................................... 10
Legislative History......................................................................................................................... 11
Current Legislative Issues: P.L. 112-96 ......................................................................................... 13
Concluding Remarks ..................................................................................................................... 14
Tables
Table 1. Short-Time Compensation (STC) and Regular Unemployment Insurance (UI)
Beneficiaries, 1982 to 2011 .......................................................................................................... 4
Table 2. State Legislation and Short-Time Compensation (STC) Initial Claims as
Percentage of Regular Unemployment Compensation First Payments ........................................ 5
Table A-1. States with Short-Time Compensation Programs ........................................................ 15
Appendixes
Appendix. State Implementation of Short-Time Compensation Programs.................................... 15
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Compensated Work Sharing Arrangements as an Alternative to Layoffs
hort-time compensation (STC), sometimes called work sharing, is a program within the
federal-state unemployment compensation system that provides pro-rated unemployment
S 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, less than half 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 1992 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.
Congress passed legislation in February 2012, P.L. 112-96, that is intended to clarify the
definition of STC and to provide incentives to states to adopt and modify STC programs.
What Are Short-Time Compensation and
Work Sharing?
The terms short-time compensation and work sharing are sometimes used interchangeably,
however the term work sharing also refers 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.1
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 In this example, 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 almost half of an average worker’s wages (with
considerable variation among states),3 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.
Working reduced hours because of economic conditions is currently quite common. In February
2012, an estimated 5.8 million workers were employed part-time because of slack work or
business conditions.4
1 Work sharing should be distinguished from “job sharing,” which usually involves splitting a single position among
two or more part-time workers.
2 For more on the federal-state unemployment compensation system, see CRS Report RL33362, Unemployment
Insurance: Programs and Benefits, by Julie M. Whittaker and Katelin P. Isaacs.
3 U.S. Department of Labor, Unemployment Insurance Chartbook, Replacement Rates, U.S. Average,
http://www.doleta.gov/unemploy/chartbook.cfm.
4 U.S. Bureau of Labor Statistics, Employment Situation News Release, February 2012, Table A-8, “Employed Persons
by Class of Worker and Part-time Status,” at http://www.bls.gov/news.release/pdf/empsit.pdf.
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Compensated Work Sharing Arrangements as an Alternative to Layoffs
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.5
The basic outlines of STC programs are similar among the 23 states, and the District of
Columbia, that have implemented STC. In February 2012, Congress passed P.L. 112-96 which,
among other provisions, clarifies requirements related to STC programs. Under P.L. 112-96, the
term short-time compensation program means a program under which
• employers participate on a voluntary basis and submit a written plan to the
appropriate state agency;
• an employer reduces the number of hours worked by employees in lieu of
layoffs;
• employees’ workweeks have been reduced by at least 10% and by no more than
the percentage determined by the state (if any, but in no case by more than 60%);
• STC is paid as a pro rata portion of the unemployment compensation that would
otherwise be payable to the employee if such employee were employed;
• 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 workweeks;
• eligible employees may participate in a state-approved employer-sponsored or
Workforce Investment Act training program; and
• employers who provide health or retirement benefits (defined benefit or defined
contribution pension plans) must certify to the appropriate state agency that such
benefits will continue to be provided to STC participants under the same terms
and conditions as though the workweek of such employee had not been reduced
or to the same extent as other employees not participating in the STC program.
As described below, P.L. 112-96 provides temporarily federally financing for 100% of STC
benefits in states that meet the new definition of an STC program. A transition period of up to two
years and six months from enactment of the new law is provided for states with existing STC
programs that do not meet the new definition.
Currently, 23 states and the District of Columbia operate STC programs. The states with STC
programs are Arizona, Arkansas, California, Colorado, Connecticut, Florida, Iowa, Kansas,
Maine, Maryland, Massachusetts, Minnesota, Missouri, New Hampshire, New York, Oklahoma,
Oregon, Pennsylvania, Rhode Island, Texas, Vermont, and Washington. The STC programs in
Colorado, the District of Columbia, New Hampshire, and Oklahoma were enacted in 2010. Maine
and Pennsylvania adopted STC in the spring of 2011. In January 2012, New Jersey enacted an
5 William J. Barrett, Spreading Work: Methods and Plans in Use, The President’s Organization on Unemployment
Relief, Washington, DC, April 1932.
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STC program. A description of STC programs in the states that currently operate them can be
found in the Appendix.6
STC benefits are financed the same way that regular unemployment benefits are financed, that is,
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.” 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
almost 50% of average wages, up to a cap, although there is considerable variation by state. As a
result, in order to qualify for partial unemployment benefits an average 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
The majority of states and territories that operate unemployment compensation programs do not
have STC programs, and employers in many states that do have the program make limited use of
it. From 1982 through 2008, the ratio of STC beneficiaries to regular unemployment
compensation beneficiaries among all states attained 1% only twice, in 1992 and in 2001. In
2009, however, the ratio of STC beneficiaries to regular unemployment compensation
beneficiaries rose to 2%, and this ratio reached nearly 3% in 2010, as shown in Table 1.
6 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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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. The local peaks in 1992, 2001, and 2009-2011
correspond with the recessions of July 1990 to March 1991, March 2001 to November 2001, and
again with the recession that ran from December 2007 to June 2009. Almost 98,000 workers
received STC in 1992, about 111,000 received STC in 2001, about 314,000 received STC benefits
in 2010, and about 236,000 workers received STC in 2011. The number of STC beneficiaries
often rises near or following the end of a recession, as employers regain confidence in the
economy.
Table 1. Short-Time Compensation (STC) and Regular Unemployment Insurance
(UI) Beneficiaries, 1982 to 2011
STC Beneficiaries as a
Percentage of Regular UI
Year
STC Beneficiaries
Regular UI Beneficiaries
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
8,363,380
0.05%
1986 12,956
8,360,752
0.15%
1987 23,019
7,203,357
0.32%
1988 25,588
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 32,494
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 93,795
10,092,569
0.93%
2003 83,783
9,935,108
0.84%
2004 42,145
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%
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STC Beneficiaries as a
Percentage of Regular UI
Year
STC Beneficiaries
Regular UI Beneficiaries
beneficiaries
2008 96,388
10,059,554
0.96%
2009 288,618
14,172,822
2.04%
2010 314,102
10,738,550
2.92%
2011 236,379
9,474,445
2.49%
Source: CRS calculations. Data on STC first payments were provided by the U.S. Department of Labor’s
Employment Training Administration. Data on first payments for regular unemployment insurance are from ETA
report no. 5-159.
Table 2 shows initial claims of STC benefits during selected years from 1997 to 2011 in states
with STC programs (certain non-recession years have been deleted) for which data is available.
STC usage varies significantly among the states with STC programs. In 2011, for example, the
ratio of STC beneficiaries to beneficiaries of regular unemployment compensation ranged from
negligible usage in several states to over 8% in a few states.
Table 2. State Legislation and Short-Time Compensation (STC) Initial Claims as
Percentage of Regular Unemployment Compensation First Payments
Year STC
Program
State
Enacted
1997 2001 2008 2009 2010 2011
Arizona
1982
1.7% 4.9% 1.7% 3.6% 1.9% 1.4%
Arkansas 1985
a a 1.3% 1.0% 0.9% 1.7%
California
1978
1.6% 3.2% 2.2%b 5.2%b 3.6%b 3.0%b
Colorado 2010
d c c c d 0.1%
Connecticut 1991
d e e e d 2.6%
Florida
1983
0.5% 1.0% 0.3% 0.8% 0.5% 0.9%
Iowa 1991
a a a 3.0% 2.0% 2.7%
Kansas 1988
3.8%
6.0%
a a 8.8% 4.6%
Maryland 1984
d d d d 0.8% 0.8%
Massachusetts
1988
0.2% 1.1% 1.1% 5.6% 2.0% 1.0%
Minnesota 1994
0.1% 2.1% 2.2% 5.6% 1.7% 2.4%
Missouri
1987
2.5% 6.1% 6.2% 8.5% 5.1% 8.9%
New Hampshire
2010
c c c c 0.1% 0.8%
New
York 1985
0.8% 3.6% 1.3% 5.0% 2.6% 2.2%
Oregon
1982
0.1% 1.5% 1.6% 5.5% 2.9% 1.7%
Rhode
Island 1991
1.0% 6.2% 8.1% 15.9% 7.1% 8.3%
Texas
1985
0.2% 1.1% 2.2% 2.8% 1.9% 3.5%
Vermont
1985
0.9% 5.5% 5.0% 6.9% 2.6% 3.3%
Washington 1983
1.0% 2.0% 2.8% 5.6% 5.5% 4.4%f
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Source: During the years reported in this table, states were not required to report STC data to US DOL,
although some collected it in various forms. CRS computations are from STC initial claims data provided by the
U.S Department of Labor, Employment and Training Administration, and data on regular unemployment first
payments from ETA report no. 5-159, unless otherwise noted.
Notes: The fol owing states are not included in the table: Louisiana (STC has been discontinued) and the
District of Columbia, Maine, New Jersey, Oklahoma, and Pennsylvania, all of which recently implemented STC
programs.
a. State continues to have an STC program but has stopped reporting on it or did not report on it in this year.
b. April 19, 2012 email correspondence with California’s Employment Development Department. Data for
calendar years 2008-2011 reflect STC first payments as a ratio to regular unemployment first payments.
c. State did not have an STC program in this year.
d. Less than 0.1%.
e. State reports on other STC activity, but general y does not report STC first payments or initial claims.
f.
April 18, 2012 email correspondence with the Washington Employment Security Department. The figure of
4.4% represents the ratio of STC first payments to regular unemployment first payments.
A 2002 study (hereinafter, 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 generally 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.7 In
Connecticut in 2009, manufacturing firms were more likely than other firms to use STC.8
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, for example whether work sharing is appropriate for both a firm and its employees. The
low usage rate of STC, even in some 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.
7 Thomas MaCurdy, James Pearce, and Richard Kihlthau, “An Alternative to Layoffs: Work Sharing Unemployment
Insurance,” California Policy Review, August 2004.
8 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.
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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 2010, the National Governors’ Association promoted
STC as one of a number of recommended policies for assisting workers in an economic
downturn.9
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-by-
case basis. In addition, STC may increase processing costs for the state agency relative to layoffs
because, for a given firm, work sharing affects a larger number of workers than if the firm were to
lay off workers.10 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. (hereinafter, Berkeley
Planning Associates and Mathematica).11 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,12 is probably small. The immediate impact is negative
9 National Governors Association, NGA Policy Positions: Employment Security System Policy, July 11, 2010, section
11.3, at http://www.nga.org/cms/home/federal-relations/nga-policy-positions/page-ecw-policies/col2-content/main-
content-list/title_employment-security-system-policy.html.
10 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.
11 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.
12 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.
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as STC benefit payments increase with the onset of a recession. Increased state unemployment
tax receipts respond with a lag. STC benefits are experience-rated13 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.
When STC was first implemented in the late 1970s and 1980s, proponents argued that it would
help protect the gains made by affirmative action. Because women and minorities were newer to
the workforce, they were considered 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, 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.
13 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: Programs and Benefits, by Julie M. Whittaker and Katelin P. Isaacs.
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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.14
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
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.15 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.16 Because most state STC programs require employers to
maintain health insurance and pension benefits during the period of the work sharing arrangement
14 Barbara Kiviat, “After Layoffs, There’s Survivor’s Guilt,” Time, February 1, 2009.
15 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.
16 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.
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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.”17
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.18
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.19
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,20 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
17 Benjamin N. Gedan, “WorkShare Helping Workers and Employers,” The Providence Journal, May 22, 2009.
18 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.
19 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.
20 Telephone conversation with Steve Wandner, U.S. Department of Labor, June 22, 2009.
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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
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
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 Development21 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.22 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.
21 The Committee for Economic Development is a non-profit, business-led organization that has addressed economic
and social issues since 1942.
22 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.
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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 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 Code23 to authorize states to pay STC benefits from their
accounts in the Unemployment Trust Fund. UCA essentially consisted of a five-point definition
of STC as a program under which (1) individuals’ workweeks were reduced by at least 10%;
(2) STC was paid as a pro rata portion of the full unemployment benefit that an individual would
have received if totally unemployed; (3) STC beneficiaries were not required to meet availability
for work and work search requirements, unlike beneficiaries of regular unemployment
compensation, but they were required to be available for their normal work week; (4) STC
beneficiaries could participate in employer-sponsored training programs; and (5) the reduction in
work hours was 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 did not contain the employee and employer safeguards that had been present in TEFRA. In
particular, UCA did 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 was 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 did 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.24
Between 1992 and 2012, when Congress passed P.L. 112-96, DOL largely 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 (hereinafter, Balducchi and
Wandner).25 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
23 26 U.S.C. §3304.
24 Telephone conversation with Rich Hobbie, National Association of State Workforce Agencies, June 24, 2009.
25 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.
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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.26
Current Legislative Issues: P.L. 112-96
On February 22, 2012, the President signed into law P.L. 112-96, the Middle Class Tax Relief and
Job Creation Act of 2012, which is a comprehensive package of measures that includes STC
provisions based largely on stand-alone bills S. 1333 (Senator Jack Reed) and H.R. 2421
(Representative Rosa DeLauro). P.L. 112-96 clarifies the definition of STC and offers incentives
to states to adopt and modify STC programs. Under the new legislation, employers would
voluntarily submit written STC plans for approval by the relevant state agency; eligible workers
would receive unemployment compensation on a pro rata basis and would be able to participate
in state-approved training; employees would meet the availability for work and work search
requirements while collecting STC by being available for their workweek as required by the state
agency; and employers who provide health and retirement benefits would be required to certify
that these benefits would continue to be provided under the same terms and conditions as though
employees’ workweeks had not been reduced or to the same extent as other employees not
participating in the STC program. A state may ask DOL to approve other appropriate provisions
in the state’s STC law. For states that are currently administering STC programs that do not meet
the new definition in P.L. 112-96, a transition period equal to the earlier of 2½ years or the date
the state changes its STC law is provided.
P.L. 112-96 provides temporary (up to three years) federal financing for 100% of STC benefits in
states that meet the new definition of an STC program. States with existing STC programs that do
not meet the new definition would be eligible for 100% federal financing during a transition
period of two years. The 100% federal financing may be drawn down through a period ending 3½
years after the act’s enactment. States without existing STC programs would be allowed to enter
into an agreement with DOL to receive federal reimbursement for temporary (up to two years)
federal financing of 50% of STC payments to individuals, as well as federal reimbursement for
additional administrative expenses, with employers paying the other 50% of STC benefit costs. If
a state that enters into an agreement with the U.S. Secretary of Labor subsequently enacts a state
law meeting the criteria in P.L. 112-96, that state would be eligible to receive 100% federal
financing for STC programs for a total period exceeding no longer than three years.
Under P.L. 112-96, DOL may award grants to eligible states, with one-third of each state’s grant
available for implementation and improved administration purposes and two-thirds of each state’s
grant available for program promotion and enrollment of employers. The maximum amount of all
grants to all states would be $100 million, less a small amount to be used by DOL for outreach.
DOL is required to develop model legislative language and to provide technical assistance and
guidance to states, in consultation with employers, labor organizations and state workforce
agencies. DOL is directed to establish reporting requirements concerning the number of averted
layoffs and participating employers. Finally, P.L. 112-96 provides $1.5 million for DOL to report
to Congress and the President, within four years of enactment, on the implementation of the
legislation, including a description of states’ best practices, analysis of significant challenges, and
26 Telephone conversation with David Balducchi, U.S. Department of Labor, June 24, 2009.
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a survey of employers in all states to determine the level of interest in STC. DOL is expected to
release regulations and guidance in the near future.
Concluding Remarks
STC is currently implemented in almost half of the states, and the District of Columbia, that
operate unemployment insurance programs. In these states, it has never reached a large number of
workers, although there is evidence of increased use in 2009 through 2011. Congress passed P.L.
112-96 in February 2012 to promote state adoption and implementation of STC programs. P.L.
112-96 is intended to clarify the definition of STC and DOL’s role in implementing the program.
DOL is expected to release regulations and guidance in the near future.
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Appendix. State Implementation of Short-Time
Compensation Programs
Currently, 23 states and the District of Columbia operate STC programs. Table A-1 displays how
STC is implemented in states that have programs (Pennsylvania, Maine and New Jersey, which
adopted STC programs in 2011 and 2012, are not included in the table). 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 a year in Arizona. An
individual may receive STC benefits for up to 18 weeks in Colorado or for up to 52 weeks in
Minnesota, Missouri, Oregon, or Rhode Island. California and the state of Washington place no
limits on the number of weeks a worker may receive STC benefits, although these states have
caps on total benefits paid to an individual.
Table A-1. States with Short-Time Compensation Programs
Period of
Required Reduction of
Maximum Number of
Continuation of Fringe
State
Approved Plan
Work
Weeks Payable
Benefits Required
AZ
1 year
At least 10% but not
26 weeks (limitation does not
more than 40%
apply if state insured
unemployment rate (IUR) for
the current and preceding 12
weeks is equal to or greater
than 4%)
AR
12 months or date
Not less than 10%, but
26 weeks
X
in plan, whichever
not more than 40%
is earlier
CAa
6 months
At least 10%
No limit on weeks, but total
paid cannot exceed 26 x weekly
benefit amount
COb
12 months or less
At least 10% but not
18 weeks
X
more than 40%
CTc
26 weeks (with 26-
Not less than 20%, but
26 weeks
X
week extension
not more than 40%
possible)
DC
12 months
At least 20%, but not
50 weeks (with 2-week
Xd
more than 40%
extension possible)
FL
12 months
Not less than 10%, but
26 weeks
not more than 40%
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Period of
Required Reduction of
Maximum Number of
Continuation of Fringe
State
Approved Plan
Work
Weeks Payable
Benefits Required
IA
52 weeks
Not less than 20%, but
26 weeks
X
not more than 50%
KS
12 months
Not less than 20%, but
26 weeks
not more than 40%
MD
6 months
At least 10%, not to
26 weeks
exceed 50%
MA
26 weeks
Not less than 10%, but
26 weeks
X
not more than 60%
MN
At least 60 days
At least 20%, but not
52 weeks
but not more than
more than 40%
1 year
MO
12 months
Not less than 20%, but
52 weeks
not more than 40%
NH
26 weeks
Not less than 10%, but
26 weeks
Xd
not more than 50%
NY
Not less than 20%, but
20 weeks
X
not more than 60%
OK
12 months
Not less than 20%, but
26 weeks
X
not more than 40%
OR
No more than 1
At least 20%, but not
52 weeks
year
more than 40%
RI
12 months
Not less than 10%, but
52 weeks
not more than 50%
TX
12 months
At least 10%, but not
26 weeks
more than 40%
VT
6 months or date
Not less than 20%, but
26 weeks
in plan, whichever
not more than 50%
is earlier
WA
12 months or date
Not less than 10%, but
No limit on weeks, but total paid
X
in plan, whichever
not more than 50%
cannot exceed maximum
is earlier
entitlement
Source: U.S. Department of Labor, Comparison of State Unemployment Insurance Laws, 2011 (Washington, DC:
2011), pp. 4-10 to 4-11, available at http://www.ows.doleta.gov/unemploy/pdf/uilawcompar/2011/special.pdf.
Notes: Maine and Pennsylvania, which adopted work sharing programs in the spring of 2011, are not included in
Table A-1. In Hawaii, a partial unemployment program similar to work sharing has been implemented on a
temporary basis through July 1, 2012.
a. STC benefits are not payable on any type of extended claim.
b. Expires July 1, 2013, or sooner if program causes accelerated insolvency of UI cash fund.
c. Dependency al owance not provided.
d. Plan must describe the manner in which fringe benefits are treated and employer must certify plan is not
being used to reduce fringe benefits.
e. Health benefits must be provided; retirement contributions must be made for each hour worked; must
specify the effect on other fringe benefits.
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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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