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Job Creation and Destruction

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Written by Nicole Woo   
Thursday, 24 March 2011 16:00

As CEPR economists Dean Baker, Eileen Appelbaum and Mark Weisbrot have written here, here, here and here, work-sharing is a policy that has helped many countries keep their unemployment rates lower during the recession.

In a nutshell, Dean's work-sharing tax credit proposal would pay employers to keep workers' pay constant while reducing hours. For example, rather than laying off 10% of her employees, an employer would reduce all of her workers' hours by 10% and get a tax credit to keep their pay whole.

Some critics claim that recent (weak) job growth in the economy means that work-sharing is no longer needed. But this misses the fact that the reported jobs numbers are the *net* total of jobs created and lost. Since employers both hire and fire workers, work-sharing would help by preventing some of the millions of layoffs that happen every month.

Yesterday, the Census Bureau's Business Dynamics Statistics (BDS) released a report with a graph of job creation and destruction rates since 1980 that nicely illustrates this point.

BDS2009Fig1

As Census explains:

Figure 1 shows the BDS patterns of gross job creation and gross destruction rates for the U.S. private sector from 1980 through 2009.... It is evident from Figure 1 that there is always a swift pace of U.S. gross job creation and destruction. The difference between the two determines whether the economy expands or contracts (i.e., the difference is, by definition, equal to the net employment growth rate of the economy).

...It also is evident from Figure 1 that job creation and job destruction tend to move in opposite directions during expansions and contractions. All of the recessions since 1980 experienced a large increase in job destruction in one or more years, accompanied by a decline in job creation.

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