Unemployment Solution: Pay People to Work Shorter Hours
As part of the Roosevelt Institute's 10-part series on the Jobs Crisis, running on the New Deal 2.0 blog from Nov. 12-25, I was asked to reflect on what can be done to get Americans working again. Here's my take.
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.
This post originally appeared on New Deal 2.0.
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America's companies cannot think any further ahead than the quarterly report.
The very idea even that they should trim profits and dividend payments in order to keep people in jobs escapes them. My husband just lost his job yesterday from a firm whose CEO is paid over 10 million a year and is getting a bonus for laying off hundreds of people.
So, no jobs, more draw from unemployment, no taxes paid in, lowered spending which means lowered demand which means more lay-offs and so on.... But multi-million dollar man and his buds can't see that far ahead and would never consider lowering their take to keep the economy rolling.
When I lived over in Germany as a teen, I remember getting out of class for the day and maybe
having to do 1/2 hour of homework. Meanwhile all my German friends were covering 12+ subjects including at least 2 extra languages with a minimum 3-5 hours homework every night.
Their version of the SATs determines if you are academic material or if you are going on to trade school, but either way, the goal is to make sure every student becomes a productive member of society.
If a student demonstrates a sincere desire to learn, that student is given every opportunity to advance.
With 2 in college right now, I will tell you, we may have the best " funded" universities, but our education system is failing most kids and they are not ready for the work force or the struggles of life.
The solution to unemployemt is that you collect your unemployment check each week AFTER you finish your training classes.
Yes some Americans work very hard. Some would love to have the opportunity to work hard and some
think they deserve a salary just for showing up.
We're getting our arses kicked by people who are hungry to succeed, hungry to learn, and smart enough to learn from our mistakes.
Dean, you've been reading my comments. If the economists are correct in saying that the jobs lost to American workers in the past three decades are never coming back; we need to find some way to make these changes. 1/ Reduce the work week to 32 hours. 2/ Mandate 4 weeks of vacation per year. 3/ lower the retirement age to the middle 50's. 4/ Raise the minimum wage and pay for this by taxing the holy cr*p out of the ungodly profits these large banks are making. They've created this mess and they owe it to us to fix it!
Say what? I own a company - the recession has reduced our revenues. How can I afford to pay someone for 5 days and only have them work 4? I don't get it.
Let me add that a "tax credit" doesn't let me write a check every 2 weeks to an employee. No, I would need a direct infusion of cash from the government so I could pay the employees to make this work. Especially since banks are not giving loans to small business.
More pay for less work! That will surely make us competitive internationally! *snicker* But hey, live the easy life, right? It worked for Rome... until it collapsed under the weight of its own decadence. Or, if we wouldn't be competitive internationally, we'll just close off international trade! Isolationism sure worked for Imperial China... until it got carved up into "spheres of influence."
Sorry, but we have had quite enough of the carrot, we need a little stick, actually we need a big stick. Congress has been giving away credits to business for this and that for the last 40 years. We have had virtually no penalties, and today smart businesses pay little of no tax. We have given out so many credits that there is little left to give. And guess what they don't work!
What created the fair work place in this country was penalties, law suits brought by unions and employees to force employers to act in reasonable manners - put in fire escapes, proper ventilation and lighting in the work place, end racial discrimination, slow down sexual assault, etc. We were doing pretty good, business was complying and the work place changed. Then disaster struck, the pendulum of justice swung back in favor of business, and we started issuing credits for good behavior. Thing is that a company can take that credit and do absolutely nothing - the way most bills are currently written no one has standing in the courts to enforce the intent of the statute. Meanwhile the courts, stuffed with right wing libertarian judges, have made it all but impossible to bring a discrimination case, a poor work quality work place suit, a sexual assault suit, or etc.
What we need is a return to the days when we valued employees and regulated the employers to force compliance with common sense rules. The good ole days!
Military Industrial Complex, Right Wing Extremism, Conservatives wanting to kill of everything that breathes and starve children by taking away school lunches.
Now we are wanting to subsidize those evil companies and let Republicans work less hours so they can go out and campaign like the unemployed Democrats in 2010. You gotta be nuts, if you let those hard working republicans have some leisure time they will definitely get out the vote and Democrats will not have a chance in 2010.
you do realize that Germany's system is about 100 years old and does not guarantee anything like full pay?
It is called short work, and it is meant for lean times in manufacturing, whcih are not a recent phenomena, but have been around forever.
It allows for a period of up to 2 years of short work. In this short work phase you basically put the whole company on a form of unemployment. In exchange you are not permitted to fire anyone (except with cause), or hire any new people, and everyone gets the same % of hours and pay.
So basically a company says that orders are way down, so in order to keep their skilled employees they are going to cut the hours the company is open form 40 hours a week to 20 hours a week. This actually means they are open shorter and make less goods.
American corporations would use this plan to render full time employees to part time status
so they could try to weasel out of paying health benefits.
My extended family and friends in Germany have a running joke about who lost the war.
They have free health care, job training and free university, far advanced public transportation, 2 years
of maternity leave and plenty of vacation and other programs that strongly support families.
I argue in return, that more than half of our taxes go to the military industrial complex and corporate
protectionism rather than actually benefitting the people.
Apparently Japan hasn't done so bad either, so who really won?
In my view the solution to this catastrophe is to reduce home loans to 2% APR and automotive loans
to no more than 6% . Credit cards should be limited to a maximum APR of 10% with criminal
charges for usury strongly enforced.
This is a nation of consumers and service industries. The only way to re-start this economy is
to stop protecting the banks and put the money in the hands of the people.
Yes, this is why you need penalties associated with the plan - penalties that allow employees to bring suit to recover any lost wages whenever this plan is misused for any purpose. Strangely enough executives are wary of misusing suits when they know their employees or a union can sue them for several hundreds of millions of dollars. Has a tendency to make them think twice, unlike taking a credit.
Professional American workers generally have a pretty crappy existence -- no job security, no pension, huge pressure to work many hours, very short vacations, non-portable health care. All for the small chance of striking it big. European workers have a pretty good existence. Isn't living well a really important national value that cannot be compensated with all the debt-financed "stuff" that Americans accumulate in good times. It is amazing that Americans are not up in arms about this; good thing we have our national myths of "freedom" and "opportunity" to anesthetize us....
I think that shorter work weeks make sense: maybe each worker makes less because of fewer hours, but he or she is in less danger of being laid off entirely. The problem I see is, of course, maintaining worker benefits. Hiring four workers to do what is now the work of three would mean even higher health care costs for businesses.
If only health care were not tied to employment.
why not work 1 day and get paid for 5 full days of salary.
No employer will take the bait unless the government fully compensates the salary of the 2nd worker in the job sharing.
otherwise the company still has to pay the additionally hired worker. no?
i dont think 3000$ covers the cost of the second worker.
This is a similar idea to Roosevelt's desperate attempt to freeze wage declines with the National Recovery Act. Net result: over 20% unemployment. Any attempt to intervene in how companies pay their employees only results in more misery for the weakest class.
Where does this stuff come from? The economy was collapsing. How can you reasonably tie growing unemployment to an attempt to freeze wages. Just so you'll know, the NRA (national Recovery Act) established agency's with rather unspecific powers. They cranked out a plethora of regulations. It also established rules that allowed workers to form unions. It's true that unemployment reached 20%, my father was one them, but then dairy farmers were pouring their milk onto the ground because they couldn't sell it for what it cost to produce it.
I seriously considered making the NRA's blue eagle my icon, but I liked Uncle Sam's war poster better.
Well, its simple. Freeze wages and it makes corporations less likely to hire. Hence unemployment goes up. Why would you hire any employees if the government was telling you you had to pay them an inflated wage (inflated because, as you point out, the economy was tanking and prices in every other category were deflationary).
A nice idea that works in several countries In America the worker is seen as a 'cost' not an asset(unless of course you are management then there is nothing too good for them). The worker has been objectified just as the cotton picking slaves were. There is little difference between the slave and the modern worker.
Both work hard just to subsist. They have few rights and little energy left for any leisure activities.
What we have is an attitude problem in America. The top 1 to 5% think they are royalty and the bottom 95% act like that's okay with them.
For the past 30 years, Germany has suffered from chronic unemployment of around 10%. In the under 25 year old segment, unemployed has hovered around 20-25%. Germany is the last country on earth to look for inspiration in solving our current unemployment woes. Why do you think that none of the "new" industries originated in Germany during the past 30 years. No Intels, no Apples, no Googles; no innovations like the Internet or the development of basic technologies behind the cell phone revolution. Germany has suffered horribly from chronic unemployment for a generation and a half because they have subsidized non-competitive industries and pandered to their powerful public and private sector unions. It is almost impossible to start a new business in Germany due to the strict labor laws and punishing government regulation that stifles innovation. Look elsewhere for your model.
You don't know much about the German economy -- one of the richest nations in the world. Germany took on the debt and economic troubles of East German, otherwise Germany would be in even better shape. Germany is the second highest exporting country on earth (second to China). Germany has the highest paid work force on earth, and the highest standard of living. Maybe Germany doesn't work well for CEOs who want to make billions, but Germany works very well for the German people. Oh, the German health care system is considered the best in the world.
Don't forget about the Mass Transit and the Education system...
This is a wonderful idea both economically and morally. Sadly, the only thing that Senator Reed's bill will do is give the Senate Republicans another chance to fire up their base with more foolish talk about socialism.
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