SHORT‐TIME WORKING AND THE UNEMPLOYMENT BENEFIT SYSTEM IN GREAT BRITAIN*
| Author | John Richards,Alan Carruth |
| Date | 01 February 1986 |
| DOI | http://doi.org/10.1111/j.1468-0084.1986.mp48001003.x |
| Published date | 01 February 1986 |
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 48, 1(1986)
0305-9049 $3.00
SHORT-TIME WORKING AND THE
UNEMPLOYMENT BENEFIT SYSTEM IN GREAT
BRITALN*
John Richards and Alan Carruth
I. INTRODUCTION
In Great Britain employees placed on short-time working' are entitled
to receive compensation for lost earnings through several different
channels. First, since 1912 they have been able to claim unemployment
benefits from the National Insurance Fund. Second, employees may
benefit from statutory guarantee payments made by employers which
were introduced under the Employment Protection Act 1975 and first
became payable from 1 February 1977. Payments are restricted to a
maximum of 5 days in any 'roiling' 13 week period. But, if short-time
is more prolonged than this employees can fall back on the unemploy-
ment benefit system. Not all employers are obliged to make statutory
guarantee payments. Twenty-two exemption orders from statutory
requirements in favour of collectively bargained arrangements existed
at February 1984. Third, employees may receive compensation from
employers under national/company guaranteed week agreements
although these may be suspended in certain specified circumstances
which forces short-time employees to rely on unemployment benefit. A
fourth strand was added to these short-time compensation arrangements
between 1978 and 1984 which involved the government subsidizing
short-time working where this was being adopted as an alternative to
redundancy. It first occurred from May 1978 onwards with the Short-
Time Working Compensation Scheme in textile, clothing and footwear
industries which preceded the universal Temporary Short-Time Working
Compensation Scheme (TSTWCS), introduced in April 1979 and which
closed for applications in March 1984.
* John Richards' research was financed by a grant from the E.S.R.C. Government and Law
Committee. We are grateful to David Metcalf and Erica Szyszczak for comments on an earlier
draft. The final version was improved considerably by Richard Disney, the Referee and Editor
of this journal who helped to clarify a number of issues. The usual disclaimer applies.
'Short-time working means that, for reasons outwith their control, employees are unable to
work a normal (40 hours say) week. However, workers on short-time, who have to rely on
unemployment benefit to make up for lost earnings, but are not counted as unemployed, are
classed as 'temporarily stopped' (Great Britain). The expression 'temporary layoff' is similar
in spirit to the notion of temporarily stopped except that the affected individuals will count as
unemployed (United States).
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Compensation for short-time thus represents a mix of provisions that
have been funded partly by Government and partly by employers and
employees. An interesting question is how compensation provisions
influence efficient employment adjustment, for example, Fitzroy and
Hart (1985, p. 709, our parentheses explaining UI).
'establish that two different theoretical models lend support to
the claim that differences in the payroll tax instruments for fund-
ing UI (unemployment insurance) between the United States on
the one hand and Europe and Japan on the other can help to
explain the smaller reliance on layoffs in the latter countries.'
We focus on another issue, namely, the role of the unemployment
benefit system for short-time working in post World War II Britain, by
way of an analysis of the determinants of those workers who are classed
as temporarily stopped (see footnote 1). This also allows consideration
of the impact of the Temporary Short-Time Working Compensation
Scheme. The paper is organized as follows. Section II offers a brief
historical description of short-time working since the turn of the century.
The specification of a model to explain the impact of the unemploy-
ment benefit system on short-time working is set out in Section III, and
empirically tested using annual data in Section IV. Concluding com-
ments are contained in Section V.
II. HISTORICAL DEVELOPMENTS
Short-time working as a means of meeting fluctuations in labour
demand is by no means of unfamiliar practice. Its history goes back a
long way. In evidence to the Select Committee on the state of children
employed in manufacturing industries it was reported that in 1811-12
'many of the factories in and around Manchester did not work above
half time' (British Parliamentary Publications (BPP), 1816, p. 302))
while before 1816 the potters 'in many cases ... (were) limited to three
or four days a week' (ibid., BPP, 1816, p. 388). Beveridge (1930, pp.
220-21) provides a whole series of examples of short-time working
around the turn of the last century. It was found to be very completely
developed in coal mining, where according to the state of trade, the pits
remained open for a varying number of days each week. Although coal
mining occupied the premier position, short-time methods were found
across whole sections of British industry (Labour Gazette, October,
1908). For example, in cotton spinning it had become a regular and
organized practice advised completely by the employers associations
where, before short-time could be introduced, it was necessary for 80
per cent of the members belonging to the Cotton Employers Federation
to consent to this course of action.
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