Navigating the Jobs Crisis: Unemployment Solution–Pay People to Work Shorter Hours
Monday, 11/16/2009 - 5:39 am by Dean Baker | 17 Comments
In the wake of the highest unemployment rate in 25 years, the Roosevelt Institute asked historians, economists and other public thinkers to reflect on the lessons of the New Deal and explore new, big ideas for how to get America back to work. Dean Baker argues for a work-share program that would save 5 million jobs.
The unemployment rate is 10.2 percent and virtually certain to rise even higher in the months ahead. Even with the prospect of extended benefits, unemployment is still a crisis for the families affected, as they struggle to pay their mortgage or rent and cover other essential expenses. Millions will end up falling behind, losing their home — in some cases leading to homelessness and/or family break-ups.
Fortunately, there is an easy and quick way to begin to get these unemployed workers back to work. It involves paying workers to work shorter hours. The mechanism can take the form of a tax credit to employers. The government can give them a tax credit of up to $3,000 to shorten their workers’ hours while leaving their pay unchanged. The reduction in hours can take the form of paid sick days, paid family leave, shorter workweeks or longer vacations. The employer can choose the method that is best for her workers and the workplace.
If take-home pay is left unchanged as a result of the credit, then demand should be left unchanged. If workers are putting in fewer hours and demand is unchanged, then employers will need to hire more workers.
This logic is as simple as it gets. The process is also quick and cheap. In principle, the government can go this route to save jobs at a cost of a bit more than $20,000 per job - far less than the cost per job saved through the stimulus package.
Germany has used this policy to keep its unemployment rate at 7.6 percent, about the same as it was before the recession. Imagine if workers in the United States, like workers in Germany, were dealing with the recession by putting in four-day weeks (while getting paid for five) or getting an extra two weeks of paid vacation. This sure beats being unemployed.
Seventeen states already have a “work-share” program in place that allows employers to use unemployment insurance money to cover a reduction in work hours, without a corresponding reduction in pay. More than 100,000 layoffs have been prevented as result of this program.
Senator Jack Reed (D-RI) has a bill that would increase funding for work-share programs and remove some of the bureaucracy. The bill also provides start-up money for the states that don’t have programs.
The Reed bill would be a big step towards following the Germany model, taking advantage of a program that is already in place. It could quickly make a big dent in the unemployment rate, by preserving many of the jobs that are now being lost.
In this respect, it is important to clear up a common confusion about the economy. The monthly job growth number is a net figure. Approximately 4 million people leave their jobs every month, half involuntarily. We have job growth if we either create more than 4 million jobs or reduce the number of jobs lost below 4 million.
If a work share program reduced involuntary job loss by 20 percent, or 400,000 per month, it would have the same effect as adding 400,000 new jobs. Over a full year, this would generate nearly 5 million new jobs. This would be a quick and effective way to reduce unemployment.
Dean Baker is the co-director of the Center for Economic and Policy Research.
A very sound suggestion, and great to have Mr. Baker here.
Posted by James Call | November 16th, 2009 at 2:05 pm
Seconded. I believe France has a shorter workweek permanently however, and they still have relatively high unemployment.
Posted by Zach P | November 16th, 2009 at 3:18 pm
This is an interesting idea, but American work culture is so different from that of Europe. We have an obsession with face-time at the office, and a cultural abhorrence (at the corporate level), of anything that resembles a holiday. A sad state of affairs, but there you go. I’m not sure that Americans can psychologically accept this solution.
Posted by Nellie | November 16th, 2009 at 3:39 pm
@Nellie: Well, here’s one overworked American with a lot of unemployed friends who’d happily accept this solution.
But I don’t necessarily disagree with you, and it is a sad state of affairs…
Posted by James Call | November 16th, 2009 at 4:23 pm
If you’re suffering from an insuffiency of demand, then how does it help to have a work share program. Why not do Government as Employer of Last Resort and get more people working, doing more productive things for the economy? In economists’ terms, the utility comes where the real benefit of the output/process exceeds the real costs of the inputs.
The real costs of the inputs include incremental consumption increases (do they eat more, get sick more, drive more, do more laundry etc. due to working) as well as the subtraction of some consumption items (less crime, less need for police, less need for domestic violence help, less beer consumed, fewer broken windows and broken bones of associates, more productive offspring, etc.)
The real benefits include the good feeling of having an extra nurse holding your parents hands at the nursing home, more traffic crossing guards for kids going home from school, more teaching assistants, cleaner environment, less waiting time in public lines due to more lines due to more people to service each line, etc. etc. You can achieve more real benefits through an ELR program. Why pay people to sit at home or work less?
Posted by Marshall Auerback | November 16th, 2009 at 4:32 pm
A few more hours with the family each week could do wonders for the stress of many people right now, and perhaps indirectly lower medical costs.
Or result in the breakup of more families. Coin toss, I guess.
Posted by Zach P | November 16th, 2009 at 5:44 pm
I love it that there is always at least one “they tried that in France and it didn’t work” parrot whenever this topic comes up. All that the remark proves is that the commentator has read newspaper or Economist magazine stories and NOT actual studies of the outcome. The newspaper stories in the U.K. and the U.S. were almost exclusively stenographic reports of interviews with opponents of the 35-hour law. You would think that after all the misinformation and disinformation that the American media purveys (and which Dean Baker chronicles daily in his Beat the Press blog) that readers would learn to read critically. After all, Zach P, the same people who told you that it didn’t work in France also told you there wasn’t a housing bubble.
Posted by Tom Walker | November 16th, 2009 at 9:57 pm
“Why pay people to sit at home or work less?”
That’s a good question. Part of the answer is that they can be more productive if they would work less. That doesn’t necessarily mean they will produce more total output on the job in fewer hours — although their hourly productivity is likely to increase. But more important, is how people might use the time to engage in civic activities, care for family members and neighbors, further their education or be artistically or scientifically creative.
Americans seem to have swallowed the propaganda that free time is for sitting at home, maybe watching t.v. Maybe that’s all they have the energy to do after working long work days and weeks. Me? My work week is three days and I just finished writing a book in my free time.
Posted by Tom Walker | November 16th, 2009 at 10:12 pm
Part of the reason I mentioned that, Tom, was that I hoped someone would explain what France is not doing right, if they are using that policy to help with unemployment. I have no idea what else France does as a safety net, besides its expansive and wonderful (from my friends who have been their have attested) health care system. Can you tell me?
Posted by Zach P | November 16th, 2009 at 10:18 pm
My French friends all rave about their unemployment benefits… but that’s allegorical of course. Maybe I’m just fond of the French.
Posted by James Call | November 17th, 2009 at 6:33 am
@Tom Walker: very good point about productivity. I think anyone with any artistic or athletic inclination can relate to what you’re saying. I’d gladly accept a slight decrease in income in order to have more time when I didn’t just feel -tired-.
Posted by James Call | November 17th, 2009 at 6:34 am
Zach,
Anders Hayden wrote an article in 2006 outlining the shortcomings of the 35-hour policy, how the original plan was watered down and its qualified success. It is estimated to have created 300,000 jobs — not as many as hoped initially but then what got implemented was different from what was proposed. Here’s a link to the Hayden article:
http://hussonet.free.fr/ahayden.pdf
Posted by Tom Walker | November 17th, 2009 at 9:39 am
Thanks Tom, I’ll check it out.
Posted by Zach P | November 17th, 2009 at 1:36 pm
Why do people have such a hard time appreciating French advances in human civilization? The Financial Times, which routinely deplores the French “inflexible” labor (meaning hard to fire at will, not rigid and uninovative) and avoids acknowledging French workers with their 35 hour week are more productive than Americans who work (those who have work) more than 40 hour weeks on average, had to announce today that the economists they charged with ranking Europe’s finance ministers had ranked France’s first and Germany’s second. It was Germany that pioneered the system Dean Baker recommended. The economist judges were not a band of leafties. The chief economist at the conservative insurance company Allianz, acknowledged they had averted a rerun of the Great Depression. We, in America, should not be afraid to try it
Posted by Peggy Dobbins | November 17th, 2009 at 8:11 pm
Why not use a Government as Employer of Last Resort program to address the updating of U.S. infrastructure? By some accounts, global production rates of oil have peaked. We are going to need things like a high speed rail system to adjust to this reality. Put people to work!
Posted by kevin | November 17th, 2009 at 11:17 pm
“Imagine if workers in the United States, like workers in Germany, were dealing with the recession by putting in four-day weeks (while getting paid for five) or getting an extra two weeks of paid vacation.”
It doesn’t work quite like that. In Germany, the workers work less, but they are paid less as well. The Government subsidy is mostly used to pay the worker’s social contributions at their previous level. This keeps contributions to unemployment insurance, health insurance and the German social security system at their pre-crises levels. As these are all Government programs, this is mostly a book keeping exercise.
The people I know who are affected by the this plan are hurting because of the pay cuts, but admit it is better than being unemployed (as I am).
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