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The Virtues of Work Sharing

Though Washington has been mired in gridlock over the past few years, work sharing is one policy that has enjoyed the support of Democrats and Republicans alike. And with good cause. Estimates suggest that work sharing has saved over more than half a million jobs since the Great Recession and is still a good policy to keep people in their jobs instead of getting laid off.

Work sharing, also known as short-time compensation, is a policy that lets employers adjust to slowdowns in business demand by reducing hours for workers rather than laying them off. This is accomplished by allowing workers to put in fewer hours while having much of the difference offset by unemployment insurance.

For example, consider a company facing a temporary drop in demand. Assuming this led to a 20 percent drop in production needs, the company might consider reducing the total number of workers by 20 percent. These layoffs would not only leave these employees out of work, but when production needs return to trend, the company would have to hire new employees and train new workers.Under work sharing, however, workers don’t have to lose their jobs. Instead, they can work 20 percent fewer hours and receive 20 percent of their weekly unemployment benefit to help make up the lost income. Using the example above, rather than working a full five-day work week, work sharing participants work four days. Instead of the $500 a week they typically earn, they get $400 from the employer as well as 20 percent of their $250 unemployment benefit for a total $450 dollars a week.

While a little less than their normal pay, this is generally preferable to being out of work altogether. At the same time, employers are able to retain skilled workers. In the 29 states that currently participate in work sharing, both employers and workers report satisfaction with the program. In an effort to ensure continued support for the program, Sen. Jack Reed (D-R.I.) and Rep. Rosa DeLauro (D-Conn.) recently introduced legislation to continue the financing of work sharing programs. Reed and DeLauro were also the original sponsors of legislation to finance work sharing as it was incorporated into the Middle Class Tax Relief and Job Creation Act of 2012.

At the time, the United States averaged around 2 million layoffs a month. While the unemployment rate has fallen sharply since 2012, there are still roughly 1.7 million layoffs a month, so the need for the program remains. Other countries, most notably Germany, have demonstrated the value of work sharing in protecting workers from the impact of recessions. Output in Germany actually fell by a larger amount in the Great Recession than in the United States, yet its unemployment rate actually fell from 2007 to 2010, even as it rose by more than 5 percentage points in the United States.

Work sharing is also a useful policy in the context of thinking about the 40 hour work week. In the decades prior to the passage of the Fair Labor Standards Act (FLSA), the work week for U.S. workers fell from roughly 60 hours a week in 1880, to about 50 hours a week in 1920. After the FLSA was enacted in 1938, hours settled at around 40 per week. In many European countries, however, many people work less than 40 hours a week and enjoy a standard of living similar to that in the United States.

In part, this is because employee benefits like healthcare and retirement have historically been tied to employment in the United States while in Europe they have been tied to government. This made the overhead cost to employers per worker, rather than per hour. That created an incentive to keep longer workweeks rather than hire more workers. Expanded healthcare coverage as brought about by the Affordable Care Act already allows U.S. workers to work less than full time and still have health insurance.

Defined-benefit pension plans have largely been replaced with 401(k)s, which are largely paid in proportion to hours worked. This means that the factors that have artificially prevented the continued shortening of the workweek in the United States have largely been removed. Work sharing can go along with other changes in policy and practices to facilitate a reduction in the average length of the workweek and work year, putting us more in line with other wealthy countries.

A final related point is that futurists and alarmists have been warning that robots are coming for or already are taking our jobs. That is simply not the case. In fact, what automation we see now and will likely see in the immediate future still requires a fair amount of human input and interaction. More automation could lead to a boost in productivity, but not to the extent that people are thrown out of their jobs. To the contrary, this increase in productivity could allow us to work a little less while enjoying a good standard of living. Policies drawing from work sharing coupled with benefits not tied to a 40 hour work week could help make that happen.

Alan Barber is director of domestic policy at the Center for Economic and Policy Research in Washington, D.C.

This article originally appeared in The Hill.

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