Reducing Unemployment with Work-Sharing

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Written by Nicole Woo   
Friday, 20 August 2010 17:28

With today's news that jobless claims are up, Dean Baker points out that "employers are already hiring more than 4 million workers a month. The problem is that roughly 4 million workers a month are also leaving their jobs, half voluntarily and half involuntarily."

So while it's important to reduce jobless claims, the unemployment rate would also be lowered by working on the other side of the jobs equation -- by preventing some of the 2 million layoffs that happening every month.

This is where the idea of work-sharing comes in.  As the NY Times noted in a recent article on Germany's quick rebound from the recession,"A vast expansion of a program paying to keep workers employed, rather than dealing with them once they lost their jobs, was the most direct step taken in the heat of the crisis,"

Ezra Klein picked up the article earlier this week, saying that "saving jobs makes a lot of sense, and that's why it's so crazy that we're going to allows states to fire hundreds of thousands of public-sector workers."  He noted that Tyler Cowen also approves of Germany's successful strategy: "In a highly specialized modern economy, it is much easier to prevent jobs from being destroyed than to create them again."

As it turns out, the bipartisan duo of Dean Baker of CEPR and Kevin Hassett of AEI have been promoting similar work-sharing concepts here the U.S.  In this joint op-ed in the LA Times, they explain the good reasons to use work-sharing to create jobs and avoid layoffs. 

In a nutshell, Dean's work-sharing tax credit proposal would pay employers to keep workers' pay constant while reducing hours, which would reduce layoffs as well as incentivize new hiring.  So, 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.  Dean 's rough estimate is that this tax credit would create a net total of 1.3 and 2.7 million jobs. 

It would also help state and local governments, since the credit is available to any employer, whether it operates in the private, public, or non-profit spheres.  In this way, the widespread adoption of the credit could go a long way towards helping cash-strapped states and localities limit their public sector employee layoffs and furloughs.

And if Baker, Hassett, Klein and Cowan aren't enough to convince you, last fall in the NY Times both Paul Krugman and Mark Zandi wrote that work-sharing is deserving of consideration.

There are work-sharing bills in Congress now, with Rep. Conyers sponsoring Dean's employer tax credit idea, and Sen. Reed and Rep. DeLauro proposing an expansion of current state-level work-sharing unemployment programs nationwide (currently only 17 states have such programs).

If you'd like to learn more, CEPR has collected links about work-sharing here.