When General Motors sneezed last spring, Schlegel Maryland Inc. caught a bad cold. The huge automaker cut back its car production, drastically trimming orders for weatherstripping made by Schlegel's Chestertown plant.
But instead of shutting down for two weeks and laying off employees, Schlegel turned to the state's work-sharing program. Under the plan, the workweek was cut to four days, and 65 employees were able to collect partial unemployment benefits to help make up for the 20 percent pay cut.
"We were able to spread a two-week total layoff over 10 weeks, which was much better for our people and for the company, too," said Wally Gordon, the plant manager.
Employees ended up with more than 90 percent of their usual weekly wages, plus an extra day off, while the manufacturer was able to hold on to nearly all of its trained work force during the unexpected cutback in orders.
"Nobody likes a shutdown or a slowdown, but considering the alternatives, work-sharing turned out to be a very good solution," said Mr. Gordon, whose plant recently began another series of four-day weeks because of cutbacks in the auto industry.
About 30 companies have been approved for the state program, 10 of them in the past week, said Carol Camper of the Maryland Office of Unemployment Insurance. Last year 36 employers used the plan, which began in 1984.
"We'll probably see more employers using it as the economy worsens, to avoid full layoffs," Ms. Camper said.
The state unemployment rate hit 6 percent in December, the first time it had been that high in seven years.
Employers using work-sharing can reduce weekly hours as much as50 percent and as little as 10 percent, said Thomas S. Wendel, director of Maryland's unemployment-benefit office.
They can stay in the program for a maximum of 26 weeks. Employees also have to agree to the plan, and reduced hours must be shared equally within a defined work unit.
The program "bought us some time during a period when we did not have the business we normally have," said Horace G. Skinner, human-resources manager for Leica Inc.'s Diecraft Division in Sparks.
In November, the manufacturer of optical components cut its 40-hour workweek by 20 percent for 250 workers.
With weekly unemployment benefits, most employees collected about 90 percent of their average wages, Mr. Skinner said.
Without the state program, workers would not have been eligible for one day's unemployment benefits each week because their earnings from four days' work would have exceeded the limit for jobless benefits. In addition, they would have had to look for other work to be eligible for benefits.
Under work-sharing, however, employees get weekly unemployment benefits based on the percentage of the usual workweek that they do not work.
At Diecraft, the benefit was $43, 20 percent of the maximum weekly benefit of $215. Employees get an extra $8 a week for each child, Mr. Skinner said.
Although Diecraft saved payroll expenses, it continued to provide full fringe benefits for employees during the work reduction, he said.
The main benefit to the company was keeping its highly qualified work force intact during the downturn, Mr. Skinner said. Absenteeism also dropped dramatically during the work-sharing program, he added.
One negative result was the lag in employee motivation after the first few weeks. "We wanted a fast pace for four days instead of the five, and it didn't turn out that way," Mr. Skinner said.
Employees were positive initially, but veteran workers who did not think they would be laid off became disgruntled by the year's end, he said.
When the upturn in orders was not as strong as expected, Diecraft ended the nine-week work-sharing program and laid off 38 employees.
The plant had planned to lay off 60 workers in November, so the work-sharing helped soften the impact, Mr. Skinner said.
Mark Vananzo, a Diecraft employee who sets up computerized mills and lathes, said the work-sharing period forced him to cut back on some expenses, but it also produced long-term savings.
He began car-pooling with another employee in Harford County to save gasoline and is continuing the shared drive.
"I didn't fall behind with any bills, but I didn't get ahead, either," said Mr. Vananzo, who has worked at Diecraft for 10 years.
Workers knew that orders were declining and that cuts were likely, he said, adding, "Employees understood it, and it worked out pretty well."
Thirteen other states have similar unemployment-benefit programs. California was the first in 1978, addressing anticipated layoffs of public employees because of legal restraints on
government budgets prompted by a taxpayer revolt.
Studies in other states have shown economic benefits for the employers, who avoided worker turnover and held down the rise in unemployment-insurance rates.
Motorola Inc. saved at least $975,000 through work-sharing programs at its Arizona plants in 1982 and 1983, according to researchers at Arizona State University.
New York officials estimated that the state's unemployment-insurance trust fund saved more than $3 million in the first 4 1/2 years by helping employers keep workers on the payrolls at reduced hours instead of cutting them loose.
The plan does cost the state more to administer the jobless benefits, since processing five one-day checks for five people is more expensive than processing a single five-day check for one claimant, said Mr. Wendel of the state unemployment-benefit office.
Companies will still pay higher unemployment-insurance rates, according to how heavily they use the partial benefits, he said.
To make work-sharing worthwhile, companies have to be looking at temporary declines in business -- not long-term losses -- and must want to retain their trained work force, Mr. Wendel said.
In some businesses, the employer is not as concerned about keeping workers and will save money through layoffs or complete shutdowns.
Workers who can walk down the street and get a job paying as well are not likely to stay around for less than 100 percent of their wages, he said.
Manufacturing companies, which have set shift schedules, are more likely to use the plan than service-sector employers, Mr. Wendel said.
The program is not beneficial to defense companies because of their uncertain business cycles, he said.
The work-sharing program has improved over the years as computer systems have sped up processing and payments to workers, said Tom Cawrse, human-resources manager for Sealy Furniture of Maryland.
The program "has been good to this company," he said.
Sealy has used the program three times since 1985 and has just applied for another round of short-term benefits to cover 180 employees.
"It gives us the best possible method to handle short-time problems, which can certainly happen in the furniture business," Mr. Cawrse said.