February 26, 2010
Dean Baker
Policy Network, 2010
See article on original website
Most projections now show that the Organization for Economic Co-operation and Development countries will have extraordinarily high rates of unemployment for several years to come. While there are differences across countries, in most the unemployment rate is not projected to return to normal levels until 2014 or 2015. Sustained levels of high unemployment are unacceptable, especially when we know how to bring the rate of unemployment down to normal levels.
However, there are political obstacles to the sort of fiscal and/or monetary stimulus needed to restore full employment levels of output. Given these obstacles to increasing output, governments can instead look to sustain full employment by reducing hours and dividing the required labour among the willing workforce.
This policy of work sharing has proven remarkably successful in Germany and the Netherlands. It has prevented their unemployment rates from rising in the downturn even though these countries both experienced substantial drops in GDP. In fact, the unemployment rate in the Netherlands remains under 4 percent.
The logic of work sharing is simple. Instead of the government providing workers who lose their job with an unemployment benefit, the government effectively pays firms to keep workers employed but working shorter hours. In Germany, the standard framework is that if the work week is cut by 20 percent, then the government picks up 12 percent of the workers’ pay and it requires the company to pick up 4 percent.
This leaves the worker with 4 percent less pay, while working 20 percent fewer hours. Since a 20 percent reduction in hours may mean working a four-day week instead of a five-day week, the worker may end up with almost as much net pay since they will save on commuting costs and other expenses associated with work.
A movement towards shorter hours as a way of addressing unemployment is consistent with other goals that progressives have long supported. Specifically, it can go along with improved parental and family leave policies, as this is one mechanism through which workers can be granted additional paid time off. This would be especially important in the United States, where most of the workforce still does not have paid parental or family leave; however there are few countries where workers could not be helped by making these benefits more generous.
There is also a very important environmental aspect to this issue. There is always a trade-off between leisure time and income. As productivity has grown through time, workers have divided the benefits of this growth (insofar as it has been passed on to them) between higher incomes and more leisure with substantial variations across countries. In the United States, the average number of hours worked in a year by a full-time worker has changed little over the last three decades, even while it has fallen sharply for workers in most other wealthy countries.
There are strong environmental reasons for preferring that workers get more of the benefit of growth in leisure than income. There is a solid relationship between income and per person greenhouse gas emissions; in other words, insofar as workers have more money, they are likely to emit more greenhouse gases, other things being equal.
The logic of this relationship is straightforward. Additional income is likely to be spent on items, such as bigger cars, which lead to more greenhouse gas emissions. Also, if workers have less leisure, then they will place more of a priority on their time. This means that they will be less likely to take public transportation if it implies more time spent commuting. It also means that they will be willing to pay a premium for fast food and other products that may require wasteful packaging, but offer greater convenience.
The relationship between emission of greenhouse gases, other pollutants and income is a strong argument as to why progressives should support measures that encourage workers to get more of the benefits of productivity growth in the form of leisure time rather than higher income. However, the argument for shorter hours is especially powerful in the current downturn.
Most wealthy countries are experiencing high rates of unemployment and lack the fiscal and monetary tools to foster sufficient growth to restore full employment. In this context, the choice is between high unemployment and shorter work time. Workers would almost certainly prefer the prospect of a shorter working week and longer vacations to the risk of unemployment. This is a strong argument for promoting work-sharing policies for both the current crisis and the longer-term future.
