Work Sharing: How to Make Canada (A Bit) More Recession Proof

Zach Lewsen

At the onset of the 2008 recession, Canadian employment trends took a turn for the worse. In particular, the manufacturing sector — linked to the contagious financial downturn south of the border — saw thousands of layoffs. At least one crisis-exposed company, however, dodged the trend: Standen’s Ltd, a 475-person steel parts firm based in Calgary, Alberta, proudly stated on its website that “not a single member of the Standen’s team has been laid off during this global recession.”

So, what was the trick to Standen’s success? The company allowed staff to pool unemployment risks through a “work sharing” agreement — a policy instrument that more Canadians should explore.

Work sharing helps companies facing a temporary external shock (often times, a recession) to avoid layoffs by allowing staff members to collectively reduce their work week, instead of mandating a few to lose their jobs entirely. To apply for work sharing in Canada, an employer must obtain consent from all participating staff members and any union representing them, and then enter into a contract with Employment and Social Development Canada (ESDC). Under that contract, an employer can shave up to three business days off a staff member’s work week with the understanding that ESDC will pay employment insurance (EI) to that worker for the days they are not on the job. EI benefits are capped at 55 per cent of original earnings and are paid out for a maximum of 38 weeks.

The federal government first introduced work sharing policies as a series of pilot projects in the late 1970s. A few years later, in response to high unemployment rates in the early 1980s, then-Prime Minister Pierre Trudeau introduced a nation-wide program that employers could sign on to. This initiative is still in effect today. This type of program is also used in many European countries, and even in a few American states.

Work sharing programs help workers to avoid unemployment, as well as the anxieties and family income pressures associated with it. Companies also benefit by avoiding retraining and rehiring costs that are often incurred when full production resumes. This benefit may still ring true in the most recent recession: Standen’s Ltd has claimed that “our competitors that laid off people are going to be struggling when things get busy whereas we’re going to have a much more experienced and skilled work force.”

So, just how well has this system performed? During the 2009-2010 fiscal year, use of the federal government’s work sharing program reached an all-time high: approximately 127,880 employees received work sharing benefits — of which 95 per cent later returned to a normal work week. While this would seem to indicate that Canada’s system has been effective, our work sharing usage has been relatively low (and our unemployment rate relatively high) compared to the country where work sharing is most prevalent: Germany.

In 2009, Germany’s work sharing plan, known as Kurzarbeit, insured over 1.5 million people — more than ten times the number of insured workers in Canada. A 2010 OECD report concluded that Kurzarbeit saved Germany 200,000 jobs and helped the country to sustain record employment levels during a global recession. With the help of this and other policies, Germany reduced its unemployment rate to 5.9 per cent by 2011, while Canada’s stood at 7.4 per cent. For many, Germany’s staggering success in this post-recession era indicates that Canada should expand and promote its work sharing system.

Unlike in Germany, however, work sharing in Canada has not been universally embraced by the private sector. When the federal government was first considering a national work sharing program in the early 1980s, the Canadian Manufacturers’ Association President stated that “trying to bribe industry to keep people employed, when they can’t be employed effectively, is not useful to anyone in the long run.” Yet work sharing benefits are restricted to companies that the government deems likely to bounce back. In order to receive work sharing payments, companies must prove they are taking steps — like reaching out to new markets or exploring new technologies — to ensure that a temporary setback does not become a permanent one. This requirement seems to ensure employee retention: as mentioned earlier, 95 per cent of employees receiving work sharing benefits in Canada in 2009-10 returned to full employment when the benefit payment period ended.

Despite its apparent effectiveness, work sharing is no panacea for recessionary unemployment. A recession can often spark permanent job loss for individuals whose skills are no longer in demand, or who are in a declining industry or an economically depressed region. To fix this, governments should craft a cocktail of job retraining, social security payments, and economic development incentives.

However, work sharing is a key piece of the employment puzzle countries are typically faced with during a recession. If the financial instability of the last 20 years — observed in the 1997 currency crisis in Asia, the 2001 Dot Com Bubble, and the 2008 US Housing Crash — is any indicator, further recessions can be expected in the future. Yet the recent success of the German labour market and Standen’s Ltd should serve to remind policymakers that we can effectively tackle certain recessionary risks when we bear them collectively.

History often remembers a time period based on its place in the financial boom and bust cycle — contrast the “Roaring 20s” with the “Dirty 30s”, for example. By further embracing work sharing programs, companies will be better prepared for any future recessions in a manner that shares both risk and solidarity with their employees. At the height of the most recent recession, Standen’s Ltd asserted their employees are “not going to look over their shoulder and worry about whether they’re going to have a job tomorrow.” If Canadians expand our use of work sharing, we can at least begin to define the boundaries of a future recession — instead of letting it define us.

Zachary Lewsen is a 2016 Master of Public Policy candidate at the University of Toronto and an Editorial Assistant with the Public Policy and Governance Review. He previously completed an Honours Bachelor of Arts degree in Political Science at McGill University, and has since interned for the NATO Council of Canada. A keen observer of provincial and municipal politics, Zach hopes to explore a career in urban, immigration, or economic policy.