Short-time compensation (STC) is a program within the federal-state unemployment insurance system. In states that have STC programs, workers whose hours are reduced under a formal work sharing plan may be compensated with STC, which is a regular unemployment benefit that has been pro-rated for the partial work reduction.
Although the terms work sharing and short-time compensation are sometimes used interchangeably, work sharing refers to any arrangement under which workers’ hours are reduced in lieu of a layoff. Under a work sharing arrangement, a firm faced with the need to downsize temporarily chooses to reduce work hours across the board for all workers instead of laying off a smaller number of workers. For example, an employer might reduce the work hours of the entire workforce by 20%, from five to four days a week, in lieu of laying off 20% of the workforce.
Employers have used STC combined with work sharing arrangements to reduce labor costs, sustain morale compared to layoffs, and retain highly skilled workers. Work sharing can also reduce employers’ recruitment and training costs by eliminating the need to recruit new employees when business improves. On the employee’s side, work sharing spreads more moderate earnings reductions across more employees—especially if work sharing is combined with STC—as opposed to imposing significant hardship on a few. Many states also require that employers who participate in STC programs continue to provide health insurance and retirement benefits to work sharing employees as if they were working a full schedule.
Work sharing and STC cannot, however, avert layoffs or plant closings if a company’s financial situation is dire. In addition, some employers may choose not to adopt work sharing because laying off workers may be a less expensive alternative. This may be the case for firms whose production technologies make it expensive or impossible to shorten the work week. For other firms, it may be cheaper to lay off workers than to continue paying health and pension benefits on a full-time equivalent basis. Work sharing arrangements in general also redistribute the burden of unemployment from younger to older employees, and for this reason the arrangements may be opposed by workers with seniority who are less likely to be laid off.
From the perspective of state governments, concerns about the STC program have included the program’s high administrative costs. Massachusetts has made significant strides in automating STC systems and reducing costs, but many other states still manage much of the STC program on paper.
Currently, approximately half of the states and the District of Columbia have enacted STC programs to support work sharing arrangements. However, few UC beneficiaries are STC participants. At the peak of its use in 2010, the STC beneficiaries totaled nearly 3% of regular unemployment compensation first payments. The reasons for low take-up of the STC program are not completely clear, but key causes include lack of awareness of the program, administrative complexity for employers, and employer costs. P.L. 112-96, passed in February 2012, offers grants to states to help bring attention to the states’ STC laws. In addition, P.L. 112-96 provides temporary federal funding to states that have existing STC programs or to create a new one. Despite these changes, the proportion of UC claimants receiving funds from STC remains low relative to overall UC claims.
Chosen excerpts by Job Market Monitor. Read the whole story at Compensated Work Sharing Arrangements (Short-Time Compensation) as an Alternative to Layoffs
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