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Congress Can Move Now to Prevent Layoffs, Plant Closings
Recognizing the social, economic and political threat posed by double-digit unemployment numbers, and by the prospect that those numbers are continuing to rise, key Democratic senators are proposing an innovative two-year plan to spend as much as $600 million to avert layoffs.
The plan to support so-called "work-share" strategies -- where firms keep workers on the job with reduced hours and state programs then step in to fill the pay gap -- is a classic government intervention. Yet it has won the backing not just of progressive economists but of a top economic adviser to Republican John McCain's 2008 presidential campaign.
Unfortunately, this smart alternative to layoffs has yet to earn the embrace of an Obama administration that -- despite a growing sense of urgency on the part of the president who has scheduled a December 3 forum on job creation and a cross-country "economic recovery tour" -- remains far too resistant to immediate and necessary responses to the unemployment crisis.
If the administration gets serious about addressing joblessness, however, the anti-layoff initiative proposed by Rhode Island Senator Jack Reed, a key Democratic member of the Senate Banking Committee, merits serious attention.
No, Reed's legislation is not the answer to every challenge facing a country with an official unemployment rate of 10.2 percent and a real rate that (when frustrated job-seekers and the underemployed are counted in) is closer to 17.5 percent.
There are other bold plans out there, including a call made Tuesday by the AFL-CIO for the government to spend as much as $3 trillion on schools and highway repairs to help create jobs.
But Reed's proposal has generated excitement because it is a proven approach that can be put in place immediately in states across the country.
And it could save as many as 500,000 jobs a year.
Reed's proposal is designed to strengthen existing state programs and to immediately develop new ones with an eye toward bringing a halt to the hemorrhaging of jobs that continues even as some in Washington continue to chirp about upticks on Wall Street.
Because of the ease with which it can be implemented, as well as its flexibility and cost effectiveness, the Reed plan has begin to attract key allies in the Senate. Massachusetts Senators John Kerry and Paul Kirk are co-sponsors, as is Vermont Senator Patrick Leahy.
In addition, Reed is talking to Senate Majority Leader Harry Reid, the Nevada Democrat who last week signaled that the Senate would make development of new job-creation legislation a top priority.
Harry Reid has not yet embraced the legislation advanced by Jack Reed. But the two men have been talking, and the buzz about the Rhode Islander's proposal suggests it could become part -- perhaps a major part -- of the emerging congressional response to rising joblessness.
The genius of Reed's bill is that, while it borrows from European economic strategies that have successfully averted layoffs, it builds upon programs that are already in place in much of the U.S.
The Rhode Island senator's plan does this by significantly increasing federal support for so-called "work-share" programs that now exist in 17 states and that could easily be developed in the other 33 states.
Work-share straegies, which have kept Germany's unemployment rate well below that of the U.S. and a number of other industrialized nations, are designed to keep workers on the job rather than shifting them onto unemployment rolls.
Firms that might otherwise respond to tough economic times by laying off even their most skilled workers are encouraged to keep all their employees on the job. They can do this by reducing the hours worked by employees, with an associated reduction in pay. The state, in turn, make up some or all of the lost wages from their unemployment funds.
The appeal of the scheme is that it prevents layoffs while at the same time reducing costs for the states -- as the cost of bridging the gap in pay for workers whose hours are cut is far less than the cost of providing full unemployment pay and benefits for workers who lose their jobs.
Studies suggest that Reed's proposal, if adopted and fully implemented, could preserve between 400,000 and 500,000 jobs annually.
For businesses on the brink of a plant closing, this strategy could also tip the balance in favor of keeping going -- and keeping work in communities that cannot afford to lose any more employers.
To be sure, those are saved jobs -- not newly created ones. Infrastructure initiatives, job-tax credits and New Deal-style federal, state and local employment programs are going to get renewed attention, especially if joblessness figures keep going up.
But preventing half a million layoffs annually and keeping employers functioning slows the bleeding and makes the prospect of healthy economic growth far more likely -- especially in the hardest hit cities and states.
"This plan will help prevent layoffs, make businesses more productive, and save taxpayers money by keeping people on payrolls and off unemployment benefits," said Reed. "My goal is to expand this program to allow more companies to take advantage of it and help more employees keep their jobs and their benefits as we work our way through these tough economic times."
Reed's not alone is getting excited about work-share programs as a smart, effective response to the challenges posed by rising unemployment.
Earlier this month, a leading economist, Mark Zandi wrote: "the government could help minimize the number of new job losses by promoting work-share programs. Nothing damages morale at a company more than layoffs; the experience not only is crushing for those who lose their jobs, but also weighs on those who remain, including managers. Layoffs are also costly, given severance expenses and the costs of rehiring or training new employees when business picks up again. Seventeen states offer effective work-share programs. Under these arrangements, employers cut workers' hours -- not their jobs -- and states make up a portion of workers' lost wages with unemployment insurance payments. Congress should provide financing to expand such programs nationwide."
Zandi is currently the chief economist at Moody's Economy.com, but he had another gig last year: economic adviser to John McCain's presidential campaign.
Another backer is economist Dean Baker, the co-director of the Center for Economic and Policy Research, who argues that:
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.
Last week, New York Times columnist Paul Krugman joined the chorus of supporters for the work-share proposals, explaining that:
Just to be clear, I believe that a large enough conventional stimulus would do the trick. But since that doesn't seem to be in the cards, we need to talk about cheaper alternatives that address the job problem directly. Should we introduce an employment tax credit, like the one proposed by the Economic Policy Institute? Should we introduce the German-style job-sharing subsidy proposed by the Center for Economic Policy Research? Both are worthy of consideration.
The point is that we need to start doing something more than, and different from, what we're already doing. And the experience of other countries suggests that it's time for a policy that explicitly and directly targets job creation.
A strategy that unites economic advisers to John McCain, progressive economists and a recent winner of the Nobel Prize for Economics should be an easy sell.
Unfortunately, White House economic advisers continue to express doubts about this sort of focus on job creation. For instance, Lawrence Summers, Obama's top economist, recently told the Washington Post that: "It may be desirable to have a given amount of work shared among more people. But that's not as desirable as expanding the total amount of work."
But, as the U.S. continues to expand the total amount of work at a slower pace than it loses existing jobs, Summers' reluctance to protect those existing jobs make no sense for Main Street America.
Senator Reed, on the other hand, makes a great deal of sense when he says: "These kind of work-share programs work. The 17 states that have adopted work-share programs have already saved 150,000 jobs this year alone. They have helped people keep their jobs, their health benefits, and saved taxpayers millions of dollars. We should expand work share nationwide so that more businesses and workers can take advantage of this program."
A jobs forum at the White House is fine.
So, too, is a cross-country "economic recovery" tour.
But, ultimately, the Obama administration needs to get a lot more serious about keeping workers working.
And Jack Reed is offering them a smart, proven way to do just that.