Short-Time Compensation as a Tool to Mitigate Job Loss? Evidence on the U.S. Experience during the Recent Recession

During the recent recession, workers were eligible for UI benefits only if they were laid off in most states. At the start of the recent recession only 17 states offered short-time compensation (STC)—pro-rated unemployment benefits for workers whose hours are temporarily reduced for economic reasons. The severity of the recession, however, has sparked interest in STC as a tool for mitigating unemployment during downturns. New federal legislation enacted in 2012 will encourage more states to adopt STC programs and will promote greater use of work sharing among all states. In this paper we review arguments concerning the desirability of expanding STC programs in the United States and present new evidence on the use of these programs during the recent recession. Our evidence indicates that jobs saved as a consequence of STC could have been significant in sectors like manufacturing that made extensive use of the program. We conclude, however, that, with the possible exception of Rhode Island, the overall scale of the STC program operating in the 17 states was too small to have substantially mitigated the aggregate job losses these states experienced in the recent recession. Expansion of the program within STC states as well as to states without the program is necessary for STC to be an effective countercyclical tool in the future.