Statement on New Jersey's Approval of Work Sharing

CEPR co-director Dean Baker issued the following statement after the state of New Jersey adopted a work-sharing law:

"Last week, New Jersey became the 6^th state in the country to adopt a work-sharing law since the onset of the recession. These laws modify the unemployment insurance system so that workers who have had their hours cut can get partial unemployment benefits to limit the loss of income. The point is to give employers an incentive to reduce work hours rather than lay off workers. New Jersey's action brings the total number of states that allow work sharing as a part of their unemployment insurance program to 24. One other state, Indiana, has a bill before its legislature with strong bi-partisan support that may pass this year. Officials in several other states are considering similar measures.

"The motivation for these laws is quite simple. The standard unemployment insurance (UI) system effectively encourages employers to lay off workers rather than shorten work hours. If a worker is laid off, she is typically able to receive close to half of her wages, with the duration of benefits lasting for up to 99 weeks. On the other hand, if an employer attempts to meet a shortfall in demand by having her workers put in fewer hours, the traditional UI system offsets none of the loss in income.

"While the traditional system encourages layoffs rather than a reduction in hours per worker, from a social standpoint, the latter would generally be better. The worst outcome is for a worker to be unemployed for a long period of time. During an extended layoff, workers are not keeping up their skills and often lose contact with the labor force. They may find it difficult or even impossible to find new employment.

"On the other hand, if a worker stays employed by working fewer hours, she will remain part of the labor force. They are continuing to upgrade their skills and keep up with whatever changes are taking place at the workplace.

"Systems of work sharing have been quite successful in protecting workers from the downturn in other countries, most notably Germany. The unemployment rate in Germany today is more than a percentage point below its pre-recession level. This is in spite of the fact that growth in Germany has been no more rapid since the downturn than growth in the United States. The main difference has been that the government has encouraged firms to meet the reduced demand for labor through cutbacks in hours rather than laying off workers.

"The increased adoption of work-sharing laws in the United States is a positive development. If more states adopted such laws and the take-up rate could be increased in the states that already have the laws, there would be substantial potential for lowering unemployment. Every month, close to 2 million workers are dismissed or laid off. If just 5 percent of these jobs could be preserved through work-sharing programs, it would be equivalent to creating an additional 1.2 million jobs a year.

"If President Obama and other political leaders tout the benefits of work sharing, it will increase familiarity with the program and encourage more employers to take advantage of it. State UI systems should also allow flexibility in the application of the rules so that more employers will see work sharing as a viable alternative to layoffs. Congress could also approve the Layoff Prevention Act of 2011, sponsored by Jack Reed in the Senate and Rosa DeLauro in the House. This bill would provide additional funding for the work-sharing programs already in place and also provide seed money for states seeking to establish systems."