Friday, February 1, 2013

Work Share Programs: Not back to the cutting board

To offset high unemployment insurance payments, many states are paying companies to keep their experienced workers.

As part of the Middle Class Tax Relief and Job Creation Act that passed last February, the federal government has agreed to fund work share programs. Employers are responsible for paying benefits, including health insurance, and individual state governments pay the difference in cut hours at their discretion. The only condition is that a worker's hours are not reduced by more than 60 percent. There are now 25 states and the District of Columbia participating in the work share program, which was made available this past September.

There are mixed opinions, of course, as to how effective the program will be. When considering that several states have bankrupt their unemployment insurance and are borrowing from the government, the program does give them and the government a reprieve. Paying half an employee's salary to keep them on board is more cost effective than having to support an unemployed professional until the next job becomes available.

Since the initiative is new, and temporary until the economy picks up, it's hard to determine just how effective it will be in the long-run, or what the realized net benefit is. What's important, though, is the option is there and struggling companies can determine what works best for them. When having to choose between two evils - cut an employee's hours or succumb to mass layoffs - the former is the wiser decision.

Mass layoffs have their consequences, namely it encourages many employees to leave the company because they lose their sense of job security. Which causes a vicious cycle of having to hire new employees, incur the costs of training them - at least at those companies still investing in training - and raising labor costs, which then induces layoffs. And you get the picture.

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