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Deficit Talk Distracts, Employment Works
How to Make Short Work of Unemployment
Washington always does a superb job of focusing intently on problems that are of little importance. The current, end-of-the-world debt/deficit negotiations is a great case in point. President Obama and the Republican congressional leadership are heatedly negotiating a deal on the deficit that has almost nothing to do with the country's real economic problem: mass unemployment.
The whole effort is a ridiculous charade that is intended to fix a problem that does not exist. There is no story of runaway spending or deficits, as everyone who has ever looked at the budget numbers knows. The deficit exploded, beginning in 2008, because the economy collapsed: end of story. Anyone who says otherwise either has never looked at the budget or is not being honest.
The longer-term deficit story is equally clear: the United States has a broken healthcare system. Since more than half of healthcare costs are paid through government programmes like Medicare and Medicaid, this translates into a budget problem. If we paid the same amount per person for our healthcare as any other wealthy country, then we would be looking at surpluses in the long term, not deficits.
If the economy were otherwise fine, the rest of us could just kick back and enjoy the theatrics. However, things are about as far from fine as they could possibly be right now, with close to 25 million Americans unemployed, underemployed or having given up looking for work altogether. While most of the routes back to full employment through increased demand appear blocked right now (largely because of the deficit fetishism), there is an alternative path. Instead of increasing demand, we can adopt a policy that promotes sharing of the work that is available. In other words, we have the same amount of work, but we have more people working.
The model here is Germany. It has used a "short work" policy to keep the unemployment rate down – at very low cost to the government. Its unemployment rate today is 0.5 percentage points lower than it was at the start of the downturn, even though the German economy actually has grown less than the US economy over this period.
There are many different packages that fit the short work scheme, but the basic story would be that rather than having a firm lay off 20% its workers, the government encourages the firm to cut their work time by 20%. The government directly replaces 60% of the lost wages (12% of the total wages); it has the company replace 20% (4% of total wages); and leaves the worker taking home 4% less and working 20% fewer hours.
The cost should be about the same as the unemployment insurance benefit that workers would have received if they were laid off, but the short work policy keeps them employed. This has two major benefits. From the standpoint of employers, they have workers available whose hours can be quickly increased if demand picks up. This saves them the need to find and train new workers.
From the standpoint of workers, this keeps them employed and tied to the workforce. They maintain their skills (Germany also offer training subsidies that can be used in many cases), and they don't run the risk of becoming unemployable as a result of long-term unemployment. This is especially important in the US context where a large share of the unemployed have now been without work for long periods. If nothing is done to increase employment soon, many of these workers may never find jobs again.
Interestingly, this programme was started by a Social Democratic minister in the unity government that was in power in 2008. But Angela Merkel, too, has embraced it, and the conservatives are as supportive of the policy as the Social Democrats.
It's worked for Germany but this would not, in fact, be a new policy for the United States. Twenty states now have short work programmes tied to their systems of unemployment insurance. But it is not widely used. The problem is that these schemes are poorly publicised and overly-bureaucratic. Ideally, congress would change some of the conditions that make short work less desirable than conventional unemployment insurance for more employers and employees. The most important change would be to turn it into an employer tax credit that is tied to reducing average hours by a specific amount, while keeping the number of employees constant. This would avoid the problem of having to specify months in advance how many hours each worker would work.
There is also no reason that the extended benefits that are available for the standard unemployment insurance programme should not also be available for the short work programme. Certainly, there is no public interest served by encouraging unemployment over shorter hours.
We must constantly remind the folks who make economic policy that the reason so many people are out of work is because the policy-making types didn't do their jobs. Every day, they should feel the need the repair the damage caused by their incompetence. Short work is one route that can get us back towards full employment.
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Show AllThe fact that Germany's short work plan makes sense is one more glaring case of the totally pathetic situation the US political scene has sunk into. The republicans, the Media, and a great many democrats are now so focused on deficit reduction that almost no one remembers that increasing the deficit is actually the only rational thing to do at the moment. But rational means nothing anymore. Personally, I blame the republicans for starting this, simply because they traitorously want to put a republican in the White House, the Media for being a combination of ignorant baboons, greedy, low-tax rich assholes, and generally just lapdogs of the rich and powerful. The democrats are a mixed bag of everything anyone can imagine. One point that really burns my butt is that the CBO very recently said that if Congress does NOTHING our nation's yearly debt increases will DISAPPEAR.
Dean Dean Dean you don't get it do u? The unemployed are the designated scapegoats for the economic collapse friend. The GOP nor the GOP-lite ( D's) can pt. a finger at the real villains ( Wall st. and themselves) in this pathetic Kabuki dance because they're the big winners in this nasty drama. They need a easy scapegoat to blame one that cannot fight back. So like the f*cking bullies they all are , including the Media they've decided to kick the unemployed around. I hope they feel better.
The media is especially complicit, devoting more coverage for longer periods of time to elections and the non-issues that candidates address, rather than focussing on issues that matter today and limiting election coverage to three months prior to election dates like they did 40 years ago.
One problem with the reduced work plan is that it does not provide a mechanism to keep workers submissive and demoralized in terror of losing their jobs. Also when workers are laid off, their replacements will have seen the example of what management is willing to do to people who step out of line. Also there will be some kind of probationary period for new workers before any kind of benefits kick in, so there is some money saving there, if in fact the replacements are full time, which they are unlikely to be. Training costs are pretty negligible since this now consists mostly of sitting in front of a computer and taking some online tests for a day. Sorry, Mr Baker, but you have to learn to start thinking like a manager. I suggest that you go undercover as an unemployed worker for a while to find out what our reality is like. I mean this in all sincerity. I believe that otherwise your insights and suggestions are very valid and helpful on economic issues. I can tell you from bitter experience that it is impossible for someone who has a job and status in society to understand what it means to lose that status and have to learn to look up instead of down.
Lots of businesses have a two-tier wage and benefits plan with new hires getting the shaft. If you keep everybody on, the old rules apply, the higher salaries and healthcare benefits. Companies like that--GM, for example--will want to get rid of the older workers and hire new ones. Reducing hours will cost the company money; they won't be signing up for it.
It’s hard not to look at the brutal pounding the poor and middle class continue to go through, together with the overwhelming lack of political will to address their problems, and wonder if the impoverishing of so many US citizens is of benefit to anyone. High unemployment has its upside for employers: they can get people to do more for less, and are always happy to show you the door if you don’t like it. In society at large, we can see the possibilities of an increasingly distraught undercaste developing, which will likely erupt in displays the media can report as more scary violence across our land, necessitating more police crackdowns and positioning us to be diverted into class and race warfare. Poverty in the US tends to vilify the poor.
(As for increased class/race warfare, in the City of Cleveland Heights, Ohio, there was an apparent outbreak of violent youths at a recent Coventry Street festival, purportedly of children of color. The reports varied widely, from youths firing guns to minor scuffles to essentially nothing at all but the police arresting youths for being on the street after the festival was over. Who knows what is true? The last report comes from a well-respected shopkeeper who’s been active in the area these 20 years or so, who was there the entire span of the festival and afterwards. No forensic evidence of gunfire has been presented. Yet of course the media reported on unprecedented violence, based as far as I can tell on teenagers' twitter feed, yet no photographic or media video--rather odd, given that just about everyone in the crowd no doubt had an equipped phone. A curfew has been implemented.)
Articles like this assume that the problem is that our politicians are just too dumb to see the advantages of an alternative system to deal with massive unemployment. Although such analyses are deemed rational and level-headed, they begin by assuming that those who control the employment flow are essentially clueless. It’s all people wandering around trying to fix unforeseen consequences and incapable of thinking of how to deal with them, right? Just stupid people bumbling around, right? That’s one theory, but not the only one worth consideration. One doesn’t have to assume that the guy who employs a hundred people is in on a larger scheme of playing the masses. Better to look at the trends, the laws, and the effects of likely consequences.
When the Fair Labor Standards Act was passed in 1938, with the country emerging from the Great Depression, an overtime PENALTY of time-and-a-half the regular hourly rate was imposed on employers after 40 hours of work in a week for each emloyee. The rationale behind this was to increase employment. It was reasoned that rather than pay the over-40 premium pay penalty, employers would hire additional workers.
Over the years overtime pay has ceased to become a penalty - it is built into many employment contracts and no longer has its intended effect of penalizing employers for having their workers put in long hours. Maybe it's time to make overtime pay a true penalty again, rather that business as usual. How about a two-and-a-half rate premium pay after 35 hours a week? Wouldn't this increase hiring? Sure, some workers would gripe about their lost overtime pay, but it's shared sacrifice. It's another way of shorting hours without the number juggling required by the German system.
Greg R - I believe the CBO's argument is based on the fact that if the Bush tax cuts expire as now planned, the deficit would be drastically reduced. This makes sense, as virtually all of the current "debt crisis" can be traced to the lost revenue of the Bush tax cuts.
I believe that the expiration of the Bush tax cuts would account for about 45% of the deficit reduction involved with Congress doing nothing. Most of the remainder will occur if "Obamacare" is implemented exactly as written and if Congress does not raise Medicare payments to doctors. I believe most think doctors will have to have a bit more however, or they may refuse Medicare patients.