Let’s Provide Unemployment Benefits Without Layoffs

(Bloomberg Opinion) -- Another week, another round of millions of workers filing for unemployment benefits. Data from the Department of Labor released Thursday morning show that over the past seven weeks, 33.5 million unemployed workers filed first-time claims for benefits. For context, during the Great Recession, the worst seven-week period for new unemployment filings ended on April 4, 2009, with 4.6 million new claims.

The scale of economic collapse associated with the coronavirus pandemic highlights the urgency of keeping workers connected with their employers, and finding ways to bring the unemployment rate down rapidly. One policy that could do more to accomplish those goals is work-sharing, a grossly underutilized form of unemployment insurance that reimburses workers for reductions in their work hours.

Currently, work-sharing is on the books in 27 states and the District of Columbia. The Cares Act, passed by Congress in March to help support the economy, provides significant financial incentives for states to establish work-sharing programs. The remaining states should take advantage of federal generosity and establish their own programs. And the federal government should encourage states to avoid the bureaucratic cumbersomeness historically associated with these programs. At a time when state unemployment offices are inundated, such a change would help states more easily administer work-sharing programs, and businesses more easily use them.

Work-sharing has never been a popular choice for employers in the U.S. In the most recent week for which data are available, the week ending April 18, just 0.5% of workers on unemployment rolls received work-sharing benefits. Elected leaders should publicize the advantages of work-sharing to make sure businesses know about the program and to encourage its use, especially given the unique role it could play to address today’s economic challenges. In particular, it’s important that businesses know they can use work-sharing to rehire workers they have already laid off.

About half of U.S. states have begun loosening shelter-in-place rules in hopes of reopening their economies, with several more expected to do so next week. But the lockdowns have not been as successful as many public health experts hoped, with new coronavirus cases continuing to rise or staying flat in many of the states that are reopening. This could increase the transmission rate of the virus, and lead to a resurgence in the fall.

If so, businesses would be in a tough spot. With the virus still a fact of daily life and many people limiting shopping and dining out, reopened businesses may bring in significantly less revenue than they normally would. Work-sharing would be a valuable tool for these businesses. If a business encounters the need to cut payroll expenses by, say, 20%, it could tell its workers to stay home one day per week. This would reduce workers’ pay by 20%, but under work-sharing they would be eligible for 20% of a standard unemployment benefit to make up some of the difference. Contrast this with typical unemployment insurance, which requires workers to be laid off if they want to collect any benefits at all.

And until July 31, workers receiving work-sharing payments would also get an additional $600 per week as part of Congress’s temporary expansion of unemployment benefits in the Cares Act. Many workers would see their monthly income increase considerably above its pre-pandemic level. (It would be wise for Congress to reduce the $600 federal add-on, which is so generous that it will slow the economy’s recovery.)

Work-sharing is typically thought of as an alternative to layoffs when businesses first encounter the need to cut costs. But earlier this week, the Labor Department clarified that businesses shut down by the pandemic can use work-sharing to bring back workers they have previously laid off. For example, a restaurant reopening next week could rehire all its workers, have them work half their normal shifts, and pay them half their normal weekly wages. The workers could receive half of a standard unemployment benefit, plus any available federal supplement.

Doing so would let businesses retain their workers, allowing them to avoid the costs associated with hiring and training when demand picks back up. Workers who would otherwise suffer a layoff would not experience severe income reductions and the stress of finding a new job.

Business are under threat because of the pandemic, not because they have made mistakes or are being outcompeted in the marketplace. Widespread layoffs would cause businesses to lose workers with a trove of specific knowledge that allowed them to be profitable and productive prior to the public health emergency. By maintaining employment relationships, work-sharing can preserve that knowledge and those relationships.

Work-sharing would also help the economy recover faster from the pandemic by keeping the unemployment rate lower than it would otherwise be and would help mitigate the prevalence of long-term unemployment, and the financial, social and psychological devastation that accompanies it.

Work-sharing would promote equity by spreading the economic pain from the pandemic across more workers. Under traditional unemployment insurance, economic distress is concentrated on the unemployed. Under work-sharing, the pain is shared among workers who see their hours reduced.

As states reopen their economies, policy-making will need to tilt away from the goal of keeping workers attached to their pre-pandemic employers and toward reallocating labor to industries that are expanding and away from those that are shrinking. But that is not an argument against work-sharing playing an important role in the economic recovery. It should be a tool that all businesses know about and can use. Currently, it isn’t. That needs to change, quickly.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and Arthur F. Burns Scholar in Political Economy at the American Enterprise Institute. He is the author of “The American Dream Is Not Dead: (But Populism Could Kill It).”

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