Is Work Sharing A Viable Solution To The Unemployment Problem?

As the unemployment rate stubbornly refuses to come down, Congress has rightfully begun looking at ways to spur job creation or, if nothing else, prevent further job loss. One of the ideas that has gained a bit of traction is work sharing, or subsidizing employers who reduce workers’ hours (and maintain their pay) instead of laying some of them off:

A bill sponsored by Sen. Jack Reed (D-R.I.) would give unemployment compensation to employees who accept a reduced work schedule to allow their companies to avert layoffs or to hire more employees…Democratic Sens. John Kerry (Mass.), Paul Kirk (Mass.) and Patrick Leahy (Vt.) have signed on as co-sponsors. Reed’s plan calls for up to $600 million for the program, which would last for up to two years.

The Hill noted that “Rhode Island and 16 other states already have their own work share programs, which have saved more than 146,000 jobs this year so far, according to the Labor Department.” According to Reed’s office, “if all 50 states participated in work share programs, between 400,000 and 500,000 jobs a year could be saved.”

The most outspoken advocate of work sharing has been Dean Baker, co-director of the Center for Economic and Policy Research, who pointed out that the process is cheap, simple, and quick:

In principle, the government can go this route to save jobs at a cost of a bit more than $20,000 per job – far less than the cost per job saved through the stimulus package…Approximately 4 million people leave their jobs every month, half involuntarily. We have job growth if we either create more than 4 million jobs or reduce the number of jobs lost below 4 million. If a work share program reduced involuntary job loss by 20 percent, or 400,000 per month, it would have the same effect as adding 400,000 new jobs.

Both Baker and Paul Krugman point to the example of Germany, which has a work sharing program, along with strong labor protections. As Krugman wrote, the measures “didn’t prevent a nasty recession, but Germany got through the recession with remarkably few job losses.” Plus, as Peter Dorman at EconoSpeak noted, work sharing helps preserve human capital, as firms don’t have to re-hire and re-train workers down the line — they just increase their hours back to where they were previously.

All that said, this is still only a B- idea. (Krugman acknowledges this, calling it the “third-best” economic policy available, after committing to moderate inflation to lower interest rates or further fiscal stimulus.) In the absence of stronger stimulus measures, such as aid to states or a direct job program, it will do some good — and it may be the only thing that a deficit-crazed Congress is willing to consider. But it is inefficient, has the potential to be wasteful, and obviously does nothing for those already out of work. Work sharing isn’t terrible, but I’d like to think that we can do better.