This spring, with coronavirus cases spreading and nonessential surgeries put on hold, medical device maker Boston Scientific needed to slash costs — and fast.
But instead of layoffs, it asked employees to reduce their hours and recover some of their lost wages with help from Minnesota’s unemployment insurance fund. The company, with a Twin Cities workforce of about 9,000, is one of relatively few to have taken advantage of what’s known as the shared-work program, which was specifically designed to prevent job losses in a sudden downturn.
Through mid-August, the state reported shared-work plans at 350 employers that covered about 18,700 workers, less than 5% of the Minnesotans receiving unemployment insurance benefits.
“It’s a tragically underused program,” said Aaron Sojourner, a labor economist at the University of Minnesota’s Carlson School of Management. “States should be advertising the heck out of this to employers.”
Minnesota is one of 26 states operating a shared-work program, an option long hailed by economists as one of the most effective ways to bolster the labor market during a downturn.
Keeping workers on the payroll, even at temporarily reduced hours, avoids the cascading effects of permanent job loss that can make it difficult to pay rent, keep food on the table or turn to public programs for support, advocates say.
Employers avoid the time and expense of finding, hiring and training new workers.
“Laying people off has a cost,” said Blake Chaffee, a deputy commissioner with the Minnesota Department of Employment and Economic Development, which administers the shared-work program. “This is a way to retain experienced and skilled workers during a temporary slowdown so you can quickly ramp up at the back end, when there’s an economic recovery.”
Businesses and employees alike support the program, and it’s one of the few economic stimulus tools about which Republicans and Democrats can agree.
As part of the $2.2 trillion CARES Act, the federal government is now reimbursing the full cost of shared-work benefits in Minnesota and other states with programs in place until the end of the year.
But so far, this deal-sweetener hasn’t drawn more takers in Minnesota or elsewhere. The takeup rate nationally now hovers around 1%.
In many European countries, shared-work programs are widely used to weather economic downturns.
Till von Wachter, professor of economics at the University of California, Los Angeles, argues for a national ramp-up of shared-work programs, which now are available to just 70% of the nation’s workforce.
Many businesses don’t know about the incentives and, for those that do, the implementation process can be cumbersome, von Wachter said. He encourages a more streamlined process that would give employers more control over payments as well as tax advantages.
Minnesota established a shared-work program in 1995, one of the first states to allow still-employed workers with reduced hours to tap into unemployment insurance.
To take advantage of Minnesota’s shared-work program, businesses must provide a plan to the state defining which workers will be covered and how long the reduced hours will last. Firms may shrink hours by 50 to 80% for at least two months but not more than a year, though plans may be extended up to a year.
At Boston Scientific, most of the company’s salaried workforce outside of sales and manufacturing took 20% pay cuts in April, mainly by scaling back to four-day weeks. Other benefits, including health insurance, were maintained. The program ended in mid-July and workers returned to a five-day week.
Wendy Carruthers, Boston Scientific’s senior vice president of human resources, said in an e-mail that the shared-work program was one of several “decisive, temporary actions” the company took to preserve jobs and keep its workforce ready to make a “fast recovery” when business picked up again.
The state doesn’t release names of individual companies participating in the shared-work program, but Chaffee said, “It is used by the biggest of the big and the smallest of the small.”
The program, sometimes known as short-time compensation, is flexible enough to allow bigger companies to set up two job-sharing programs, one for its office staff and another for factory workers.
As economic fallout from the pandemic has forced more Minnesota employers to slow down or halt operations temporarily, interest in the program has grown. In mid-March, just 34 plans were filed with the state. The number peaked during a three-week span beginning in late June, with more than 400 plans covering 25,000 workers.
Though the process can take up to two weeks for companies to get state approval, along with the extra paperwork, longtime advocates such as Katharine Abraham, an economist with the Brookings Institution’s Hamilton Project, argue that the long-term benefits outweigh the hassle.
“There’s a lot of value in preserving the relationship between employers and their employees,” Abraham said in a recent webcast.
Research from Brookings shows that 40% of all workers who are laid off get called back to work anyway. Sharing work, Abraham argued, is a more “equitable approach” for more workers.
“When there’s a layoff, some people are fine, and then there’s another set of people who all of a sudden don’t have jobs. They don’t have health insurance benefits. And psychologically, we know being laid off is a bad thing for people,” she said.
The U’s Sojourner said ramifications of a layoff linger beyond the downturn.
“There’s a scarring effect of recessions on the long-term unemployed,” he said. “When employers go to hire, it becomes a bad signal if people haven’t been employed in a long time.”
Nearly six months since the pandemic altered the way Americans work and go to school, the shared-work incentive may be facing another obstacle — the prospect of permanent change.
The reality may be that the longer the pandemic lasts, the more likely it is that business owners and executives will adapt, including their number of employees, for the long run.
“If you think the structure of the business is not going to be the same going forward than it was in the past, it might make more sense to change personnel,” Sojourner said. “If you think you’ll change back to something similar to the way things were before, it makes more sense to bridge through it and keep that relationship with your employees intact.”