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10.22.20

Does the US Have Scope for Expansion of Short-Time Compensation?

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Since March 2020, the COVID-19 pandemic and the efforts to contain its spread have strained the US labor market. Short-time compensation (STC) programs allow firms to reduce workers’ hours temporarily instead of laying them off, with the affected workers receiving some unemployment insurance benefits from the STC program while their hours are reduced.

In this Economic Commentary, Cleveland Fed researchers Pawel Krolikowski and Anna Weixel discuss the costs and benefits of STC and compare recent provisions for state STC programs in the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act to provisions in the Middle Class Tax Relief and Job Creation Act of 2012.

“We find that STC utilization has risen to unprecedented levels since the passage of the CARES Act, driven largely by increases in Michigan and Washington,” say Krolikowski and Weixel. “But the number of states with STC programs has remained unchanged at 27 since the beginning of the pandemic.”

The recent increase in STC utilization is small relative to the utilization of other STC programs, such as Germany’s popular Kurzarbeit program, suggesting the US may still have scope for expansion.

Read more: Short-Time Compensation: An Alternative to Layoffs during COVID-19

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