Alternative to layoffs would provide workers with more income than typical unemployment benefit, while saving employers from the long-term costs of workforce turnover.
La Grange & Champaign: As states struggle to contain the economic fallout of the COVID-19 pandemic, new research shows that full implementation of Illinois’ work-share program could save as many as 124,000 jobs, boost worker income by $1.3 billion, save businesses up to $1.2 billion in workforce turnover, and reduce Illinois’ unemployment insurance costs by as much as $1.1 billion in 2020, according to the Illinois Economic Policy Institute (ILEPI) and the Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign.
Work-share programs allow employers to reduce employee hours and payroll expenditures as an alternative to layoffs, while continuing to provide health and retirement benefits. This enables more employees to retain their jobs– while qualifying for limited unemployment benefits. Currently, at total of 29 U.S. states and the District of Columbia have such programs in place. These programs will be fully reimbursed by the federal government through 2020 under the CARES Act. However, Illinois’ program, which was enacted in 2014 under Governor Pat Quinn, was never fully implemented under Governor Bruce Rauner.
“While public health and social distancing measures to contain the spread of COVID-19 may have already induced a global recession, work-share programs have emerged as an important policy innovation that can be used to mitigate the damage,” said study co-author and ILEPI Policy Director Frank Manzo IV. “By reducing the number of workers who lose their jobs entirely, the data shows that these programs are far more economical for businesses, workers, and taxpayers.”
In Illinois, unemployment benefits replace just 47% of the income of a full-time worker who is laid off. Under Illinois’ work-share statute, as an alternative to layoffs, employers could instead reduce their workforces’ hours by between 20% and 60%. At the median workforce hour reduction of 40%, workers would stay employed, receive 60% of their normal wages, retain their health and retirement benefits, and receive a prorated unemployment insurance benefit to partially make up for their lost wages. The effect would be lower unemployment, higher incomes for those workers than if they had been laid off, and less state spending on unemployment benefits.
In their study, researchers cite evidence from the Great Recession to validate the potential impact of broadly applied work-share programs in the United States. Germany, for example, which has a robust national work-share program, saw 83% less growth in unemployment during the 2008-2009 recession than the United States, resulting in an estimated 432,000 jobs saved.
In Illinois, researchers concluded that a work-share program could save as many as 124,000 jobs, with the total impact ultimately tied to utilization rates by employers. Among the 17 U.S. states with such programs in place in 2009, the median utilization rate (as a share of total unemployment claims) was 5.6% in Minnesota and the high was 15.9% in Rhode Island. If Illinois were to match these rates on expected unemployment claims from the COVID-19 recession and subsequent support offered through the recently enacted CARES Act, ILEPI and PMCR researchers were able to estimate impacts on employment, incomes, and state unemployment expenditures.
Researchers noted that work-share programs have enjoyed broad support in both the business community and the labor movement– with both the Illinois Manufacturers Association and the Illinois AFL-CIO supporting enactment of state work-share legislation in 2014.
They estimate that Illinois’ businesses could save up to $1.2 billion in reduced turnover costs during the COVID-19 recession if Illinois’ work-share program reaches utilization rates seen in other states.
“Fully 91% of employers who have participated in these programs have said they would do so again because they protect against the lost productivity and high turnover costs that accompany mass layoffs,” said study co-author and University of Illinois Professor Dr. Robert Bruno. “Work-share enables employers to manage short-term downturns without sacrificing their ability to quickly and efficiently scale up operations during a recovery. To minimize the economic damage from COVID-19, the key for Illinois is to implement its program in a way that maximizes utilization by businesses and workers.”
The report concludes with several implementation recommendations to maximize program effectiveness in Illinois– including close coordination between state agencies, labor unions, and employers to promote the program and easily accessible web resources to streamline participation and access of benefits.
The Illinois Economic Policy Institute (ILEPI) is a nonprofit organization which uses advanced statistics and the latest forecasting models to promote thoughtful economic growth for businesses and working families in Illinois, the Midwest, and the United States.
The Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign investigates the working conditions of workers in today’s economy and elevate public discourse on issues affecting workers with research, analysis and education in order to develop and propose public policies that will reduce poverty, prevent discrimination, create more stable forms of employment, and promote middle-class jobs.