UI-Assisted Worksharing as an Alternative to Layoffs: The Canadian Experience

Abstract

This study describes and analyzes an experimental program established in Canada in 1977 under which layoffs were avoided in twenty-four firms by reducing the hours worked of all employees and taking advantage of a temporary modification of unemployment insurance legislation that allowed workers to receive UI benefits for the day or so each week that they no longer worked. Employees generally favored the plan because, in the typical case of a 20 percent work reduction, they received an extra day of leisure per week while experiencing only a 5 percent reduction in after-tax income. Most employers also favored the plan because they avoided several costs of layoffs, such as the cost of hiring and training replacements for laid-off workers who do not respond to recall. For various reasons the federal government did not continue the program when the experiment ended in 1979, but in January 1982 the government again implemented the program on a temporary basis. The author argues that UI-assisted worksharing is more efficient and more equitable because it can greatly reduce the distributional inequities of unemployment.