Policy wonks on both sides of the aisle -- from Dean Baker of the Center for Economic and Policy Research to Kevin Hassett of the American Enterprise Institute -- have proposed Germany's work-share program as an effective, cheap way to reduce unemployment in the United States. Work-share essentially induces private firms to reduce employee hours, rather than fire workers. The federal government and the firm pay a worker a portion of the wages lost due to the reduction in hours worked. The firm benefits because it is able to reduce wage costs without pushing the wage cut onto the worker and retain experienced workers. Firing is, after all, a blunt response to a drop in demand (it's difficult to fire the irrelevant part of a worker and keep the relevant part).
Resistance to the measure probably results from private firms who see the firm contribution to work-share as a new "tax" despite the benefits they would gain from the program. Although retaining experienced workers is cheaper than hiring and training new ones, these firms probably hope to make efficiency improvements that make rehiring unnecessary or hope to wait out the downturn until hiring and training do not seem so costly. For the currently unemployed, though, this status quo is unacceptable.
Thus, a federal work-share program is probably unlikely because of resistance in the private sector. However, in a time of large state and local budget deficits, using a work-share program to funnel aid to states and cities would be more politically feasible than work-share in the private sector while avoiding accusations of federal "welfare" to sustain state and local spending. Aid to state and local governments would become a jobs program. Indeed, maintaining quality public services -- which is impossible without sufficient staff -- is particularly important now because demand for such services increases during an economic downturn, unlike aggregate demand in the private sector.
Many states and cities, which cannot deficit spend, are contemplating layoffs in order to close wide budget deficits. Los Angeles, for example, is likely to lay off more than 4,000 city employees over the next two years. At the same time, both states and cities -- most notably California -- have cut hours or pay or instituted furloughs for public employees. Layoffs, of course, add directly to the unemployment rate. But reduced hours and pay and unpaid furloughs suck spending power out of an economy that the federal government is trying to stimulate.
A federal work-share program for state and city employees would ease the strain on local budgets by permitting reductions in hours and the furlough of public employees while ensuring that such measures do not significantly affect spending decisions. The work-share program would couple additional hiring by local governments to make up for lost hours to receipt of federal assistance, ensuring that local governments do not simply plug budget gaps with work-share funds.
A work-share program in the private sector would have a much greater impact on unemployment. However, at a time of increased demand for state and city services when local governments are cutting their workforces and the hours they work, a work-share program would ensure local budget cuts do not counteract the federal stimulus and that the local governments continue to serve those most affected by the economic downturn.
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