During a recession, businesses respond to weak demand by laying off workers. Paul estimated that there are 103,000 jobless workers in West Virginia. In this recession job creation has been slow as we struggle to make it from recession to recovery. As a result, many of the jobless face long-term unemployment. Almost 46 percent of unemployed workers have been jobless for at least six months , which is the highest level of long-term unemployment in over 60 years. Workers who are losing their jobs are not moving on to new jobs in expanding industries. Instead, they are staying unemployed.
Long periods of unemployment can cause long term damage. Workers who have been out of a job for too long may see their skills deteriorate, their savings erode and their professional network dry up. When economic conditions improve, they find it hard to get back into the labor market, and as more time passes, the harder it gets. In addition to the fiscal strain caused by long-term unemployment, workers and their families also experience significant psychological and emotional stress.
A policy called work-sharing can help mitigate the threat of long-term unemployment. Under work-sharing, instead of laying off workers, employers reduce their workers’ weekly hours. The states then make up some of the lost wages resulting from the reduction in hours from their unemployment funds.
For example, during an economic downturn, an employer with 100 employees may find it necessary to lay off 20 employees. The laid off employees will then collect unemployment insurance while facing an unsure future in a struggling economy. Under a work-sharing program the employer keeps all 100 employees on payroll, but reduces the work week from five days to four days, achieving the same 20 percent reduction. The employees would then be eligible for work-sharing benefits for the fifth nonworking day.
In most cases, the work-sharing benefit is equal to the proportional unemployment benefit. Unemployment benefits vary by state, level of income, and length of employment, but generally, a worker being paid $800 a week, if laid off, could receive $400 in unemployment benefits. With work-sharing, if that worker works a 4 day work week, his wages would fall to $640, and work-sharing would make up $80, or one day of unemployment benefits, for a total of $720.
In this example the state incurs no extra unemployment costs, as there are 100 workers collecting 1/5 of their weekly benefit, which is equal to 20 workers collecting a full week of benefits. The employer is charged in the same manner for 100 workers on work-sharing as it is for 20 workers on unemployment.
Instead of becoming unemployed, workers stay on the job and avoid the deterioration of their job skills and the loss of morale unemployment can cause. When the economy improves and demand increases, the employers avoid the costs of retraining and rehiring labor, as the workers who are needed to do the work are already there, which can accelerate the recovery. Employees also have more take home more pay with work-sharing than from unemployment benefits alone, reducing their financial strain.
Currently 17 states have some form of a work-sharing policy, though few take advantage or are even aware of its existence. Work-sharing has been aggressively used in Germany, where, despite a sharper decline in GDP than the United States during the current recession, their unemployment rate has been stable. And when the recovery in Germany began, German employers had the workers on hand to meet demand.
For employers who are waiting on the economy to recover so they can hire back their workers – not to mention unemployed workers who are watching their skills deteriorate and their finances crumble – work-sharing represents a simple and worthwhile policy tool to use to get us on our way to economic recovery.