Exit Ramp to Sustainability

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This post was originally published in Yes Magazine, August 9, 2010, at http://www.yesmagazine.org/new-economy/the-work-sharing-boom-exit-ramp-to-a-new-economy

Twenty months into the United States’ worst recession since the 1930s, standard approaches for putting people back to work are proving increasingly inadequate. Corporate bailouts, tax cuts, government spending, and stimulative monetary policy have been the mainstays of the government’s response to the downturn. But unemployment has remained stubbornly high, and job creation has been far below what is needed to return the labor market to its pre-crash state.

There is one bright spot on the policy agenda: work sharing. Government policies that encourage companies to reduce hours rather than lay people off are getting a new look.

Operated through the regular unemployment insurance system, state-based work sharing programs are a straightforward way of spreading and diffusing the impact of downsizing: Workers whose hours have been reduced in order to save jobs at their company are able to claim unemployment benefits for the lost hours, retaining a portion—typically half—of their lost wages. Companies have to maintain benefits for these workers; depending on the state, there can be some other requirements as well.

Shorter work time schemes have been around for years, although they have tended to be a little known, even esoteric part of labor market policy. They are far more prevalent in Europe, where they originated in the early 20th century and expanded after World War II. SWT schemes didn’t come to the U.S. until the late 1970s, when California implemented an informal version to cope with stagflation, followed by a formalized policy in 1982. Ten years later, the federal government made these schemes a permanent part of labor market policy through an amendment to the Social Security Act.

After the Crash: A Work-Sharing Boom

The National Association of State Workforce Agencies estimates that work sharing (also called shorter work time [SWT]) resulted in 166,000 jobs saved in 2009—a record number, and almost triple the number from 2008.[1] New York, in particular, has been aggressively pushing its program, and use has also exploded in a number of other states,

Before the crash, 17 states allowed workers to collect unemployment insurance on the wages they lost when their hours were cut. (Those states were Arkansas, Arizona, California, Connecticut, Florida, Iowa, Kansas, Massachusetts, Maryland, Minnesota, Missouri, New York, Oregon, Rhode Island, Texas, Vermont, Washington). Two more states, Colorado and New Hampshire, have passed work-sharing policies in recent months, and both programs are already operating. Five more states—Pennsylvania, New Jersey, Hawaii, Ohio, and Oklahoma—are considering adopting similar policies. As of this writing, the Pennsylvania bill had passed the state’s lower chamber and was awaiting action in the Senate.

Common Sense for Saving Jobs

SWT won’t do too much to put today’s unemployed back to work directly. But it can play an important role in preventing more layoffs, which in turn improves job prospects for all. Still, timing is crucial. SWT is most effective during the early months of a recession, when companies are deciding how to respond. If the economy goes into a double-dip and weakens even further, SWT could be an important stabilizer. Getting more states involved and expanding awareness of the programs that do exist should be urgent priorities.

Germany—which responded to the crash primarily through the adjustment of hours, and whose unemployment rate barely increased—is an outstanding example of how to do this. A federal scheme to replace lost wages (Kurzarbeit) accounted for about 20 percent of the reduction in hours; private bargains between employers and unions, cancelled overtime, and flexible use of vacation and other time off was responsible for the remainder.

Nor was Germany the only country to use schedule changes to cushion the collapse. Korea, Norway, and the Slovak Republic also used hours for more than 95 percent of their labor market adjustment; Belgium, Italy, Finland and Japan were also big “hours” (rather than jobs) adjusters. By contrast, in the U.S., employers responded almost wholly with layoffs.

Even with the growth in work-share programs, SWT has not yet been used in the U.S. nearly to the extent that it could be. Jack Reed (D-RI), has introduced a bill in Congress to encourage more states to join the program and to ensure its continued funding.

The politics of work sharing are encouraging for their broader application in the U.S. Such programs are cost-neutral for badly-stretched unemployment insurance funds, so they don’t run afoul of anti-spending sentiment. Though they have historically been associated with the progressive side of the fence, they appear ideologically neutral. For exampleBen Bernanke has given them his seal of approval and businesses often like them because they save on re-hiring costs. They are also, rightly, perceived as fair—rather than concentrating the pain of unemployment in a small number of people, they allow it to be shared equally. In the parlance of the day, they’re generally considered to be win-wins.

Exit Ramp to a New Economy

Work-share programs are probably the best way to respond to a short-term reduction in economic activity. But they also form a key pathway to a saner economy.

Reducing work hours improves work-life balance for many overworked, overstressed employees. Americans frequently report that what they most sense to be missing from their lives is the time necessary to enjoy them; research on well-being also indicates that adequate time is at the core of a healthy, happy life. Overworked employees report more family tension, less happiness, and more stress. This is a particular problem for Americans, who work between 100 and 350 more hours each year than workers in comparably wealthy countries.

Surveys done before the crash indicate that between 30 and 50% of Americans say they would prefer to work fewer hours, even for less pay. However, the structure of the labor market—including the need to work full-time to receive benefits—has made that difficult. That’s why taking advantage of SWT now, at a time when hours have fallen due to the shortfall in demand, is a golden opportunity.

Reduced hours can also lead to smaller ecological footprints, as I explain in my recent book Plenitude. Productivity has been on the rise for decades, but we’ve been using the benefits of increased productivity to consume ever more stuff—which we often don’t even have time to enjoy. Those additional material goods (not to mention those extra miles of commuting[IS1] ) have a major impact on the environment. Research shows that longer work hours are associated with more ecological degradation. Working less typically leads to reduced spending and also a shift to lower-impact forms of consumption: taking the bike instead of the car, or cooking at home instead of buying fast food[BJ2] . For the ecologically aware, the preference for SWT over standard job creation measures such as stimulus spending or tax cuts should be clear.

By helping to institute a new, shorter hours regime, in which increases in productivity result in time off the job rather than more material output, work-sharing programs help maintain labor market balance even if economic activity is stable or falling. That’s the win-win that has yet to factor into the mainstream discourse on shorter work hours—and the reason why reducing hours equitably in a recession is an exit ramp to a new economy.

This post was originally published in Yes Magazine, August 9, 2010, at http://www.yesmagazine.org/new-economy/the-work-sharing-boom-exit-ramp-to-a-new-economy

[1] These estimates rely on simplistic calculations, however, and should be taken as upper bounds. For a full discussion of the complexities of how to estimate employment impacts, see OECD 2010.

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8 Responses to “Exit Ramp to Sustainability”

  1. Sandwichman says:

    Although it may seem to complicate matters, it is worth pointing out that taking productivity gains in more time off work contributes to additional productivity gains, which can also be taken as even more time off work. Furthermore, the productivity gains from work time reduction are also distinctive in that they can readily be attributed directly to labor and thus accrue to the workers whereas the productivity gains that result from new technology can be more easily be appropriated by the financiers or owners of the machines. The productivity gains from work time reduction are labor-friendly in that they increase the competitive advantage of labor relative to capital.

    As Arthur Dahlberg pointed out nearly 80 years ago, “failure to shorten the length of the working day . . . is the primary cause of our rationing of opportunity, our excess industrial plant, our enormous wastes of competition, our high pressure advertising, our economic imperialism.”

  2. Sandwichman says:

    Even the IMF is climbing gingerly on the work-sharing bandwagon…


    …referring positively to “policies allowing firms to retain workers, while reducing their hours and wages—thus spreading the burden of the downturn more evenly.”

    See also (former SEIU president) Andy Stern last week on Ezra Klein’s Washington Post blog endorsing Dean Baker’s work-sharing policy proposal.

  3. Juliet Schor says:

    It’s great to see the IMF talk about aggregate demand and work-sharing! Juan Somavia is quite a progressive guy. Let’s hope we can get Obama to take this on.

    Thanks again to Sandwichman.

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