An unemployed aid program could help millions. Why aren’t more states using it?

One of the last drips of federal aid for unemployed workers will expire next summer -- and few people even know it exists.

Under federal legislation passed in 2012, the program provides funding for states that allow workers who have been forced into part-time positions to receive unemployment benefits. The payments are prorated for hours worked, and economists say the benefits encourage struggling companies to keep their employees rather than lay them off. Economists say the program could help millions of struggling, part-time workers.

States have until December to apply for federal funding to administer and market the program. Uncle Sam is also reimbursing states for payouts to workers through August 2015. But only two states, Ohio and Washington, have asked for money to set up the so-called worksharing programs, according to the Labor Department. Together, they have received about $6 million. And less than half of states have taken advantage of the federal reimbursements, which have totaled $195.5 million since the law was enacted.

What gives?

Part of the logjam is the way unemployment benefits are administered. States are responsible for running their own benefits program. Qualifying for the federal work-sharing incentives often requires a change in local legislation -- a slow and often tedious process.

Before the recession, 17 states had adopted work-sharing programs on their own. Interest spiked when the downturn hit, but almost all the programs set up before the national legislation took effect had to be tweaked to qualify for federal funding, said George Wentworth, senior staff attorney at the National Employment Law Project, which advocates for the jobless.

Nebraska recently became the 27th state to adopt a work-sharing program, and bills are pending in Virginia and four other states. Both NELP and the Labor Department expect more states to apply for the federal grants to administer the program as the December deadline gets closer.

The other problem is marketing. Businesses must enroll in the program and submit a plan for reducing employees’ hours that has to be approved by state officials. Some companies are hesitant to sign up because they do not want others to know they are struggling. But many businesses do not  know worksharing is an option. Even in Rhode Island -- the home state of Sen. Jack Reed (D), who sponsored the federal legislation -- coming up with the money to promote the program has been challenging. In a statement in the fall, Reed acknowledged that the program is often under-publicized and under-utilized by businesses.

“This is a proven, cost-effective program that helps more workers earn a steady paycheck and allows companies to save when they’re forced to temporarily scale back,” said Reed.  “Giving states an incentive to expand their work sharing programs is a smart investment in preventing future layoffs and blunting economic downturns.”

Economists on both the right and the left say the program can be highly effective in reducing unemployment. According to government data, worksharing saved half a million jobs between 2008 and 2013. New applications have fallen off as the economy has strengthened, but an average of about 20,000 people a week are still enrolled in the program.


Source: Labor Department, National Employment Law Project

Still, that is a minuscule sliver of the number of people who might be eligible for the program. According to government data, 7.4 million people are working part-time for economic reasons -- namely, slack business conditions. The statistic has been cited by Federal Reserve Chair Janet Yellen as a troubling sign of underlying weakness in the labor market.

Meanwhile, a worksharing program in Germany is credited with helping that country avoid the spike in unemployment that plagued the United States and recover more quickly from recession. At one point, more than 1.4 million Germans were receiving worksharing benefits at 63,000 businesses. If it were as popular in America, more than 5 million employees would be taking advantage of the program, according to a recent paper by American Enterprise Institute economists Kevin Hassett and Michael Strain for the Center for Budget and Policy Priorities.

“A lot of it is just a lack of information," Strain said. “You’re kind of caught in this spiral where nobody knows about them in the states that have them and that makes it less likely that states that don’t have them will adopt them.”

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The authors argue worksharing could be more effective than traditional layoffs for three reasons. First, the pain of an economic downturn is spread across a broader spectrum of workers, instead of being concentrated on the few who lose their jobs. That could help shore up demand because workers would feel less pressure to build their savings for fear of getting laid off.

Finally, they say worksharing could help ward against hysteresis, an economic malaise characterized by the deterioration of skills among the unemployed. A growing body of literature suggests that long-term unemployment is an economic trap, and Hassett and Strain argue that worksharing helps employees stay connected to the labor market even through a downturn.

The clock is ticking for states to help themselves to this federal money. But even after those incentives expire, economists and jobless advocates say they hope states will realize the potential of worksharing to soften the sting of an economic downturn -- and put their programs in place before the next one hits.

“Employers use it most when they are trying to avert layoffs," NELP's Wentworth said.  “It’s basically a program that states should have going into the next recession.”

Ylan Q. Mui is a financial reporter at The Washington Post covering the Federal Reserve and the economy.
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