Monday, April 05, 2010

Work-Sharing Works for Germany, Netherlands

Economists Kevin Hassett and Dean Baker make the case for "work-sharing" in today's LA Times:
The idea of work-sharing is simple. Currently, firms mostly respond to weak demand by laying off workers. Under a work-sharing program, firms are encouraged by government policy to spread a small amount of the pain across many workers.

In Germany, for example, which has used work-sharing aggressively in this downturn, a typical company might reduce the hours of 50 workers by 20% rather than laying off 10 workers. The government would then provide a tax credit to make up for most of the lost pay, with the employer kicking in some as well. In a typical arrangement, a worker might see his weekly hours go down by 20%, and his salary go down by about 4%.

This policy has kept the unemployment rate in Germany from rising even though the country has seen a sharper decline in GDP than the United States (see chart above). The Netherlands, which also uses work-sharing, has managed to keep its unemployment rate near 4% even though its GDP also has fallen more steeply than in the United States.

The cost to the government of going this route would be roughly the same as with the current unemployment insurance program. The big difference is that instead of unemployment benefits that effectively pay people for not working, we would be paying people for working shorter hours.

20 Comments:

At 4/05/2010 3:37 PM, Blogger sethstorm said...

The problem with that is that it does not address integrating those whom are long-term unemployed, much less those out of work.

Solve that one first.

 
At 4/05/2010 3:45 PM, Anonymous Lyle said...

This works in Europe because health care is not job linked directly. In Germany for example the health care tax is 15% of salary (1/2 and 1/2 employee and employeer for example). But since the state is the insurer it picks up costs that are would in the US either result in an uninsured situation or not cutting employment cost as much. Also note that there is a 2.2% long term care charge as well. Note that health insurance (private or state) is mandatory in Germany.

So unless you go to Wyden Bennett for health care (essentially everyone into exchanges, and a tax to pay for it) this scheme is not workable in the us.

 
At 4/05/2010 4:08 PM, Blogger Realist Theorist said...

During the Great Depression, some companies tried this. In most contexts, it is not the way to go about it. Better would be to have both workers work full time, while paying them half-pay anyway. That way, the company can slash the prices of its products.

If there is no demand at that half-price number, better to let the employee go.

If all firms do this across the economy, prices will quickly adjust downward.

Work-sharing adds to the downward stickiness of wage rates. What we really need is to lubricate wages on the way down: the way they used to be around the first world-war and before.

The economy must be allowed to quickly spiral down into deflation. Except, unlike what folks like Krugman think, the spiral does not last forever: in it, it bears the seed of a quick upward bound.

 
At 4/05/2010 4:49 PM, Blogger rufus said...

I don't like it. It doesn't remove the least productive workers, and put them on the road to finding a job more suited to their skills (attitude, etc.)

This way you keep the pain of a recession (even though you spread it around a bit,) but you get none of the benefits.

 
At 4/05/2010 4:52 PM, Anonymous econoir said...

Here in slovakia it was practicised in most of the big manuacturing (=car manufacturing) companies. slashing pays would be better solution, but that's politically totally unreal. I guess this was the second best solution and it's important to stress the private sector was the one to ask for such option.

 
At 4/05/2010 6:08 PM, Blogger sethstorm said...


I don't like it. It doesn't remove the least productive workers, and put them on the road to finding a job more suited to their skills

The problem is that your forced transition never happens desirably or peacefully for those involved. Never mind that it doesn't improve the long-term folks who don't fit the "damaged goods" stereotype.

 
At 4/05/2010 6:27 PM, Anonymous CrisisMaven said...

I wouldn't focus too much on different levels of unemployment - not only do the criteria for counting the unemployed differ, so does equally the mentality and incentives for registering as unemployed, but most of all, the insolvent US for example now has more public than private employees, many of them could also be called "redundant" without being derogatory. Or how do you count people in "government-sponsored2 enterprises like bankrupt Fannie and freddie, the FDIC (equally insolvent) etc. - is there much difference as against China's doctored figures?

 
At 4/05/2010 7:14 PM, Blogger sethstorm said...


I wouldn't focus too much on different levels of unemployment

At some point, long-term unemployed are looked at as "damaged goods". They make the problem worse, as they prolong their length of unemployment.

 
At 4/05/2010 10:50 PM, Blogger juandos said...

"Solve that one first"...

I think we could solve it by getting rid of unemployment benefits and quit taxing employees and employers that bit of extortion that isn't needed....

Unemployment Insurance Discouraging Work and Gainful Employment

 
At 4/05/2010 10:50 PM, Blogger juandos said...

"Solve that one first"...

I think we could solve it by getting rid of unemployment benefits and quit taxing employees and employers that bit of extortion that isn't needed....

Unemployment Insurance Discouraging Work and Gainful Employment

 
At 4/05/2010 11:27 PM, Blogger Ron H. said...

Work sharing is just another way to "Spread the Wealth", or in this case, to spread the poverty. Instead of a few suffering, let's all of us suffer.

Government paid benefits to make up for lost earnings due to working fewer hours, is as bad an idea as is government paying extended benefits now. Where will the money come from?

How can earnings remain the same when less is being produced?

 
At 4/05/2010 11:55 PM, Blogger Ron H. said...

>"I think we could solve it by getting rid of unemployment benefits and quit taxing employees and employers that bit of extortion that isn't needed...."

Boy, you can say that again...

Oh. Never mind, you already did. :-)

 
At 4/06/2010 5:40 AM, Blogger sethstorm said...


I think we could solve it by getting rid of unemployment benefits and quit taxing employees and employers that bit of extortion that isn't needed....

Unemployment Insurance Discouraging Work and Gainful Employment[heritage.org]

That presumes that gainful employment exists, and would not count against you receiving it in the future.

It also (incorrectly) presumes that employers are completely pure and honest creatures. Creative ways not to hire US citizens or those whom do not have a recent record of work are part of that problem. There are others that are more than willing to hide behind the law to get rid of someone (based off of inconsistent policy enforcement designed to find a violation and cover for the real reason protected by law) and deny them unemployment.

Either way, you've avoided the question. I was talking about those whom are that far out of employment and somehow have not lost any skills they've had.



Work sharing is just another way to "Spread the Wealth", or in this case, to spread the poverty. Instead of a few suffering, let's all of us suffer.

Well, there is no good answer to that question. This is probably one of the few times that people will actually get anywhere close to what they paid into it. On the downside, there are many more whom get more than that.

The better idea would to remove barriers to hiring US citizens, and not just for general labor. To that end, it would be necessary to recognize that barriers aren't just governmental(taxes and excessive form-filling), but also of businesses' making(long-term unemployment & degree "discrimination"). You will get no disagreement about tax cuts and cutting back environmental regulation.

The problems occur when there's too much innovation in how to get rid of people or how to avoid hiring them.

 
At 4/06/2010 7:59 AM, Blogger juandos said...

"It also (incorrectly) presumes that employers are completely pure and honest creatures. Creative ways not to hire US citizens or those whom do not have a recent record of work are part of that problem"...

Hmmm, are you under the assumption that companies are there just to make sure someone gets a paycheck whether they deserve it or not?

"Either way, you've avoided the question. I was talking about those whom are that far out of employment and somehow have not lost any skills they've had"...

Well sethstorm in the marketplace of employment if one has job skills that are no longer needed (i.e. buggy whip makers) or can be found elsewhere for less then why should employers hire the more expensive local talent such as it is?

"Well, there is no good answer to that question. This is probably one of the few times that people will actually get anywhere close to what they paid into it. On the downside, there are many more whom get more than that."...

Hardly... Do the simple arithmetic...

Apparently you want yet another socialist safety net or the ones on hand enhanced...

This country can't afford it...

The 2009 Index of Dependence on Government

Steuerle and Roeper Bring Us the Fiscal Democracy Index

"The problem with socialism is that sooner or later you run out of other peoples' money to spend"

 
At 4/06/2010 10:55 AM, Blogger Thomas said...

IS it possible that the higher drop in GDP is because of these policies?

 
At 4/06/2010 2:21 PM, Anonymous Anonymous said...

They have VAT on outsourcing and an org called PROSA recently revealed how a multinational company is cheating workers by paying less against rules to indian workers. A 10 - 15 % SS and Medicare tax on outsourced deals would help USA a lot . All the people who work pay them . when u get the work done in India these companies escape all those taxes.

 
At 4/06/2010 2:56 PM, Blogger Ron H. said...

Anon @ 2:21 said:

>"A 10 - 15 % SS and Medicare tax on outsourced deals would help USA a lot . All the people who work pay them . when u get the work done in India these companies escape all those taxes."

Well of course they do. Are you suggesting that workers in India should be eligible for Social Security and Medicare?

Bite your tongue.

 
At 4/06/2010 7:23 PM, Blogger Marko said...

Also, this only works if all businesses do it, otherwise your best employees will go to your competitor that is laying off the poor producers and paying top dollar for stars. I would oppose requiring businesses to do this.

 
At 4/06/2010 7:50 PM, Anonymous LAD said...

This is a really bad idea.

A recession occurs when society no longer produces what the market demands. The current recession occurred because people stopped demanding houses. The recession will end when those in the housing related industries (e.g., builders, realtors. mortgage brokers, furniture salesmen, etc.) find new jobs in industries the market will support. This plan is bad because it slows the transition process and creates incentives that lead to the misallocation of resources.

Society would be much better off if people stopped trying to protect others from bad outcomes.

 
At 4/06/2010 8:52 PM, Blogger Ron H. said...

LAD said:

>"Society would be much better off if people stopped trying to protect others from bad outcomes."

Thank you. That is an absolute gem!

 

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