Nice Work If You Can Share It

The housing bubble and
subsequent crash were the result of extreme incompetence on the part of
the country's top economic policymakers. Somehow these people could not
see, or did not care about, the dangers of an $8tn housing bubble.

Unfortunately,
economic policymaking is not like most jobs where workers get fired
when they make serious mistakes. In economics, they just keep getting
promoted. Therefore, the people who sank the economy are for the most
part the same group of people still designing policy today. Now this
group of incompetent economists is telling the rest of us that we are
going to have to endure five more years of high unemployment.

However,
the rest of the country should not be forced to suffer even more just
because those determining economic policy cannot do their jobs. We know
how to get the unemployment rate down. Keynes taught us
more than 70 years ago that we just have to spend money to eliminate
mass unemployment. People work for money, if the government spends,
people will work. It's pretty straightforward.

But, the deficit
hawks seems to have largely closed this route. Members of Congress
somehow think that they are helping our children by putting their
parents out of work.

Fortunately, we can even find a way to create jobs that can keep the deficit hawks happy. It's called "work-sharing". The basic point is so simple that even an economist can understand it.

Instead
of paying workers to be unemployed - in the form of unemployment
benefits - we pay workers to stay employed, but work fewer hours. In
effect, to avoid one worker from being laid off, several workers put in
somewhat less time on the job and take a small cut in pay. Germany
and the Netherlands have used this path to keep their unemployment
rates from rising even though they have experienced steeper downturns
than the US.

The way the system works in Germany,
a firm will cut back the hours of its workers by 20%. The government
then replaces 60% of the lost pay (12% of total pay). The firm is
expected to kick in 20% of the lost pay (4% of total pay) and the
worker ends up taking home 4% less pay.

In this scenario the
worker ends up working 20% fewer hours for 4% less pay. This can mean,
for example, that the worker ends up working a four-day week instead of
a five-day week. Given the savings on work-related expenses, like
transportation and childcare, most workers would almost certainly end
up better off under a work-sharing arrangement than they are now.

While
the economy is past its period of rapid job loss, a huge number of
workers still lose their jobs each month through the economy's normal
job churning. Each month, companies lay off or fire close to 2 million
workers. These job losses are largely offset by hiring by other firms,
so that the net change in jobs has been a small negative in recent
months. However, if we could just reduce the rate of job loss by 10%,
then it would be equivalent to creating an additional 200,000 jobs a
month or 2.4 million jobs a year. This would get us back to full employment in two years, rather than five or six, as is currently projected.

There
are other potential benefits from work sharing. The reduction in work
time could give companies an opportunity to adopt more family friendly
work practices. For example, they could adopt a policy of paid family
leave or paid sick days on a trial basis during the downturn.

There
would also be environmental benefits to reducing work hours. Suppose
everyone worked a four-day week so that we reduced the number of
commutes by 20%. This would substantially reduce the amount of
greenhouse gas emissions associated with getting to and from work. The
fact that Europeans tend to work far fewer hours than we do is
undoubtedly one of the main reasons that their per person carbon
emissions are about half of the US level.

There are already 17
states that have work-sharing programmes in place. There are bills in
both the House and Senate that would strengthen these programmes and
give support to other states to set up their own programmes. If
Congress is serious about addressing unemployment, it will act on these
bills.