NC Budget and Tax Center

Work-Sharing provisions of Obama Jobs Plan play stabilizing role in state labor market

According to the grim monthly reports from the North Carolina Employment Security Commission, the state’s unemployment numbers keep climbing. In August, the unemployment rate topped 10.4% and the jobs deficit—the monthly growth in employment necessary to return to pre-recession levels–climbed to 494,000 jobs. The jobs deficit in particular speaks to the critical challenge of long-term unemployment throughout the state.

How does President Obama’s jobs plan address this long-term labor market challenge? One key provision promotes the policy approach known as work-sharing. Although specific policy details are still forthcoming, 20 states currently offer work-sharing programs, providing a reasonably clear outline of the basic policy framework.

Under this basic framework, employers avoid laying off workers by agreeing to reduce their individual weekly hours and wages. This allows employers to stabilize their payrolls without sacrificing the need to cut labor costs. Take for example, a firm with three employees each working 40 hours a week for a total of 120 hours a week for the firm. During an economic downturn, the firm would normally lay off one worker to reduce payrolls to 90 hours a week. Under the work-share program, the firm would simply allow each employee to work fewer hours (say 30 hours a week), thus negating the need for layoffs.

For each of the three workers in this hypothetical firm, the work-share program offers prorated Unemployment Insurance benefits roughly equal to the value of their foregone wages. This ensures that workers do not lose significant income when shifting to short-time.

Given this basic approach, the program should help improve long-term labor market stability by allowing employers to reduce labor costs without laying off workers and providing workers with income supports to offset lower wages. In turn, this should reduce the burden on the UI trust fund, reduce layoffs, and ensure that workers maintain a stable income able to support crucial consumer purchasing at private sector businesses.

According to a recent OECD paper, work-sharing programs in Germany, Italy, and Japan during the recession reduced the drop in employment from 2008 to 2009 by between 0.5 and 1 percentage points—evidence of the effective role played by these programs in a broad portfolio of job creation strategies.

While these foreign programs have clearly assisted with stabilizing the labor market, experiences here in the United States are somewhat mixed, largely due to insufficient state government outreach and enrollment of firms and workers. In North Carolina, the program’s success will require the Department of Commerce to conduct significant campaigns to ensure firms are knowledgeable about the program and willing to participate. If done right, a North Carolina work-sharing program could go a long way to ensuring short relief to workers and employers alike while promoting greater long-term stability in the labor market.

One Comment

  1. Jimmy

    October 4, 2011 at 9:54 am

    Can you imagine the logistical nightmare of trying to administer this program ? We can’t even pay unemployment claims correctly in this state !