Home > jobs, unemployment > Work Sharing: The Way for States to Reduce Unemployment

Work Sharing: The Way for States to Reduce Unemployment

from Dean Baker

It is clear that we are not going to see any major action from the federal government to reduce unemployment any time soon. There is no hope that this Congress will support another round of stimulus and not much more hope from the next Congress, even if the Democrats somehow regain control.

What that means is that we are looking at a long, painfully slow recovery. Assuming that the economy continues to generate 200,000 jobs a month, roughly its average over the last three months, we will not get back to more normal levels of unemployment until somewhere near the end of the decade.

And it is certainly plausible that progress will be worse. That story assumes a recovery lasting for more than a decade, something the United States has never experienced. 

This means that we should expect to see a labor market in which millions of workers will be unable to find jobs for long into the future. They will be unable to adequately support their families, and may even lose their homes, all because the folks in charge of running economic policy don’t know what they are doing.

While economic policy is best made at the national level, as a result of the bill that extended the payroll tax cut, there is a policy that states can pursue that might make a real difference. This bill included a provision that calls for the federal government to pick up the tab for state spending on work sharing as part of the state’s unemployment insurance program. This means that states can save themselves a great deal of money if they can encourage employers to use work sharing as an alternative to layoffs.

Work sharing, formally known as “short work,” is an arrangement whereby employers reduce the hours of their existing work force instead of laying off workers. For example, if an employer was going to lay off 10 workers, she can instead have the same reduction in labor time by reducing the hours of 50 workers by 20 percent.

Under the unemployment insurance system, workers would typically be entitled to roughly half of their pay if they were laid off. Under the short work system, the government would make up roughly half of the lost wages for workers who were put on short time. In this example, if their hours were cut back by 20 percent, the government would make up half of the lost wages, or 10 percent of their total wages. This leaves the worker earning 90 percent of their former wages while working 80 percent of the time.

The bill that extended the payroll tax cut included a provision that was taken from a bill originally proposed by Senator Jack Reed and Representative Rosa DeLauro that reimburses states for the money that they spend on their short work program. This gives the 23 states that already have short work programs in place an enormous incentive to promote work sharing as an alternative to laying off workers.

While the unemployment benefits that would be paid to laid off workers come directly out of the state’s unemployment insurance fund, the state would be reimbursed 100 percent for the money paid to workers who have their hours cut. The states that don’t currently have programs in place could also receive federal money to establish short work programs.

At the moment, less than 40,000 workers nationwide are on short work programs. To increase this number, states will first have to publicize the system. Many employees don’t even know that the program exists.

States should also try to increase the flexibility of the system. Most of these programs were put in place more than 30 years ago. In many cases they are overly bureaucratic. For example, an employer may be required to specify in advance exactly which workers will have their hours reduced, and by how much time over a 3-6 month period. Such restrictions can make the short work system sufficiently unattractive that few employers will want to go this route.

However, there have been notable success stories. Germany’s unemployment rate is lower today than at the start of the recession largely because it has encouraged employers to keep workers on the payroll working fewer hours rather than laying them off. Its growth has been no better than growth in the United States over the last four years.

There are also examples in the United States of companies that use work sharing effectively. In addition to keeping workers on the job, companies also benefit from retaining skilled employees. As a result, when demand picks up they need to only increase hours rather than search for and train new workers.

There also could be longer-term benefits from work sharing. Workers in the United States spend many more hours on the job than their counterparts in other wealthy countries. We are the only wealthy country that does not guarantee workers some amount of paid vacation, sick leave, or parental leave. If work sharing gets workers used to the idea of working less for somewhat less pay, perhaps it will lead to a new push for getting the sort of guaranteed time off that workers in other countries take for granted. That would be a huge bonus from a policy that at the moment also offers the best hope for getting unemployment down to more acceptable levels before the end of the decade.

See article on original website

  1. Stuart Birks
    April 19, 2012 at 9:55 am

    An alternative viewpoint, questioning the idea of a “lump of labor”, or a “fixed amount of work to be done”, that can be shared out among available workers can be found in the WEA Ethics conference paper by Tom Walker at: http://weaethicsconference.files.wordpress.com/2012/03/walker-feb-12.pdf

    • April 19, 2012 at 1:27 pm

      Just to be clear, my paper refutes that “alternative viewpoint,” which prevails among mainstream economists.

      • April 19, 2012 at 1:53 pm

        How can there be a limited amount of work to be done? The absurdity of the notion should be self evident. There is an increasing proportion of retired people. Infrastructure needs to be renewed. There might be another blockage in the system, I do not doubt that for a moment, but it does not help in the slightest to wheel out irrelevancies like work sharing.

      • April 19, 2012 at 11:03 pm

        Henry, It pays to read what you attack before you jump in with both feet. Or perhaps not, if ignorance be bliss.

      • April 19, 2012 at 11:11 pm

        Negate a negative and you will get a nice confusion. Work sharing is a device to avoid dealing with a problem. It is an outgrowth of Job Creationism.

      • April 19, 2012 at 11:30 pm

        Henry Law :
        Work sharing is a device to avoid dealing with a problem. It is an outgrowth of Job Creationism.

        If you mean that it’s a device to avoid abolishing capitalism, perhaps you have a point. Otherwise, there is Job Creationism and Job Creationism. There is no Immaculate Conception of jobs. Now, you may prefer credit expansion to work sharing. Fine. Explain how that credit expansion can continue indefinitely without engendering credit crises and I’ll send you a check for $100. But don’t try that 232-year old swindle about how jobs are “created” by the cheapness of goods. See: http://ecologicalheadstand.blogspot.com/2012/04/efficiencys-promise-too-good-to-be-true.html

      • April 20, 2012 at 12:26 am

        Henry Law :
        Work sharing is a device to avoid dealing with a problem.

        Perhaps that is true is the problem is abolishing capitalism. But there is no “cheap market will always be full of customers” magic. Without expanding credit, cheap goods just shuffle demand around.

  2. April 19, 2012 at 1:06 pm

    Work sharing follows logically from “the lump of labour theory”, which is one of the oldest fallacies in economics.

    • April 19, 2012 at 11:12 pm

      The lump of labor fallacy claim follows logically from the “theory of compensation as regards the workpeople displaced by machinery” refuted by Karl Marx, also known as the doctrine of the “self-adjusting economic system” refuted by John Maynard Keynes. See also the Jevons Paradox, which when combined with the lump of labor fallacy claim leaves you doctrinaire dogmatists in an awful pickle. I can’t resist quoting old Karl on “one of the oldest fallacies in economics” on a speech that he attributed to the Dickens villain, Bill Sikes:

      Gentlemen of the jury, no doubt the throat of this traveling salesman has been cut. But that is not my fault; it is the fault of the knife! Must we, for such a temporary inconvenience, abolish the use of the knife? Only consider! Where would agriculture and trade be without the knife? Is it not as beneficial in surgery as it is in anatomy? And in addition a willing help at the festive table? If you abolish the knife—you hurl us back into the depths of barbarism.

  3. Podargus
    April 19, 2012 at 7:07 pm

    Work sharing may have a benefit in a few situations but,in general,the proposal is putting lipstick on a pig.
    Many more full time jobs are needed as are the adequate wages therefrom.A Job Guarantee as proposed in Modern Monetary Theory is one way to go.
    Seeing globalization as a destructive rip off is also necessary. Yes,that does mean protection and/or support for some industries.
    No doubt these suggestions are anathema to the devotees of conventional wisdom.The writer of this article is a member of that group.

  4. robert r locke
    April 19, 2012 at 8:16 pm

    I really don’t understand all the doom and gloom because of demographics. We are told that we shall have fewer and fewer young people to support a growing population of seniors. Why in that case are the employment prospects of the young so poor. Put on your thinking caps boys.

  5. April 20, 2012 at 10:42 am

    Excellent points altogether, you just received a new reader. What could you suggest about your publish that you made a few days ago? Any positive?

  6. Alice
    April 20, 2012 at 12:21 pm

    Part of the reason that jobs are now in focus is that we all, listening to “shrink the government: fools,, stopped nation building projects in any meaningful sense.

  7. originalsandwichman
    April 20, 2012 at 1:29 pm

    Henry Law :
    Sorry, neither Marx or Keynes can be regarded as authoritative in this matter. Argue the case from first principles by all means if you can. I do not deny for a moment that there is a blockage in the system, but when there is work to be done and people willing to do it, the lump of labour theory is hard to defend.

    Both Marx and Keynes “argue from first principles” but if you don’t read what they wrote you won’t know that. So, if I “argue from first principles” and you also don’t read that, where does that read us. Anyway, here’s my argument from first principles: http://www.lump-of-labor.org/2011/12/whats-wrong-with-case-against-shorter.html and here’s a more detailed discussion of the whole issue: http://ecologicalheadstand.blogspot.com/2012/04/statistical-science-fiction-further.html

    • April 20, 2012 at 5:08 pm

      They do not hold up either. For their own well being people should not spend too much time chained to a desk or machine but the idea that work should be shared out because it is in limited supply does not hold up. It is not a “cure” for unemployment.

      • davetaylor1
        April 20, 2012 at 9:59 pm

        The cure for unemployment is to replace it with cooperative partnership, but that is not where economic understanding is at for D

      • April 21, 2012 at 4:13 am

        “The cure for unemployment is to replace it with cooperative partnership, but that is not where economic understanding is at for D”

        Sorry, that does not mean anything. The cure would not be un-cooperative individualism, would it? And the co-operative partners still need somewhere suitable to do whatever they are going to do, so will end up having to pay rent to someone else, or buy real estate from someone else.

      • davetaylor1
        April 20, 2012 at 10:16 pm

        [Apologies] for Dean Baker, nor where it was for Marx and Keynes. There is a lot more excuse for Marx and Keynes not being right than there is for today’s so-called economists hanging on to fraudulent money and unspecified growth and falsely homogenous man and murderous competition for resources rather than intelligent sharing of and caring for what we’ve got and playful competition in making best use of it.

      • davetaylor1
        April 21, 2012 at 6:37 pm

        @ #19 More apologies for an old man’s late-night imperfections and a blog which doesn’t allow one to correct oneself.

        “The cure for unemployment is to replace EMPLOYMENT with cooperative partnership”, which worked in Mondragon via investment in resources considered redundant. But without employees to work one’s resources for you, doesn’t most property become redundant, inviting partners to contribute resources other than labour?

        Who would ever have thought that pigs might fly? But now they can. Famously, “if you don’t have a dream, how’re you going to have a dream come true?”

      • April 21, 2012 at 7:23 pm

        Nothing wrong with Mondragon but it worked in a particular set of circumstances that would be difficult to reproduce. The John Lewis Partnership is another. The Israeli bus company EGGED was also a workers’ cooperative partnership.

        But all of these partnerships depend on access to capital and land. They can still end up being screwed by moneylenders and landlords.

  8. originalsandwichman
    April 20, 2012 at 1:33 pm

    http://www.lump-of-labor.org/2011/12/whats-wrong-with-case-against-shorter.html

    1. The proposition accused of being false

    Every day many strangers came to town, and among them one day came two swindlers. They let it be known they were weavers, and they said they could weave the most magnificent fabrics imaginable. Not only were their colors and patterns uncommonly fine, but clothes made of this cloth had a wonderful way of becoming invisible to anyone who was unfit for his office, or who was unusually stupid…

    One of the more peculiar and puzzling responses to the New Economics Foundation’s 21 Hours report was the charge that the authors committed a “lump-of-labour fallacy” – that their policy proposals were based on the assumption that the amount of work to be done is a fixed quantity. This complaint needs to be taken seriously, not because it has substance – it doesn’t – but because of the extraordinary resilience of the fallacy myth despite its anachronism and incoherence.

    The case for shorter working time is based on a cluster of core propositions, none of which are traceable to a “fixed amount of work”:

    the economy does not self-adjust to achieve “the best of all possible worlds”;
    there are physical constraints on the sustainable consumption of natural resources, including people’s health (and, in the view of many environmental scientists, some of those limits are already being breached);
    unemployment and overwork are not the “revealed preferences” or voluntary income/leisure choice of individuals; and, finally,
    given a workforce in which many are currently unemployed or underemployed and others are overworked, policies that promote a more equitable distribution of working time can contribute to both social justice and ecological sustainability.

  9. originalsandwichman
    April 20, 2012 at 1:34 pm

    http://www.lump-of-labor.org/2011/12/whats-wrong-with-case-against-shorter_15.html

    2. The fallacy claim

    An example of the fallacy claim appeared in an opinion piece by Kristian Niemietz, “When Paternalism Meets Bogus Economics: The New Economics Foundation’s 21 Hours Report,” published by the Institute of Economic Affairs, which bills itself as “the U.K.’s original free-market think-tank.” According to Niemietz:

    This is not ‘new economics’, but a rephrasing of the old lump-of-labour fallacy, the idea that the amount of work which is ‘required’ in an economy is somehow fixed and can be redistributed ‘justly’…

    The case for work-sharing rests on a number of assumptions. Demand for working hours must be largely fixed; work must be easily divisible; and the work of one person must be a close substitute for the work of another person. When these conditions hold, an employer will be indifferent between employing A for 40 hours, or employing A and B for 20 hours each. But when the conditions are violated, then work-sharing imposes additional costs per working hour, and the quantity of hours demanded can decrease – the ‘scale effect’.

    The second and third assumptions attributed by Niemietz to the case for work-sharing are gratuitous. Work is divisible and workers are substitutable for one another in principle. What Niemietz is indirectly getting at with his two extra assumptions is the idea that reducing the hours of work will necessarily increase labour costs. That conviction is based on the unstated assumption that current arrangements of working time are optimal or at least closer to optimal than would be a more evenly-distributed arrangement of hours. He presents no evidence to support his optimistic assessment of the status quo.

    Niemietz’s polemic thus boils down to two disconnected assertions about what advocates believe, and the optimality of current arrangements, for which he presents no evidence. As Daniel Kinderman (2001) has pointed out, the “fixed amount” in the generic fallacy claim could represent either a “floor” or a “ceiling.” Niemietz relies on a “floor” explanation: higher labour costs will reduce the demand for labour below what it would otherwise be (the floor) . Other versions of the fallacy myth use a “ceiling” argument, in which advocates of shorter work time are alleged to neglect the long-term job creation prospects of economic growth.

    There are numerous explanations of the supposed fallacy. Each begins with a plausible molehill of analysis and inflates it into a mountain of dogma. Tucked in behind that surfeit of rationales is a set of propositions that are typically left unstated in current polemics. Unlike the fallacy claim, these propositions are not conjecture; there are more than enough documented affirmations of them to piece together a representative profile – which turns out to be a mirror image of the case for work time reduction. They are the assumption that, if true (but only if true), would vindicate the claim that the case for work-sharing is based on the assumption of a fixed amount of work:

    the economy does self-adjust to achieve the best of all possible worlds (or, if it doesn’t, the proper role of governments and central banks is limited to stimulating growth and controlling inflation);
    there are no physical constraints on the sustainable consumption of natural resources;
    unemployment and overwork are the “revealed preferences” or income/leisure choice of individuals; and, finally,
    any policy interference with the optimizing, self-adjusting process of market choice (other than stimulating growth and controlling inflation) can only make things worse.

  10. originalsandwichman
    April 20, 2012 at 1:35 pm

    http://www.lump-of-labor.org/2011/12/whats-wrong-with-case-against-shorter_15.html

    3. How the fallacy myth inhibits movement toward a shorter working week and how it came to have such unearned credence

    The movement for shorter hours of work played a pivotal role in the founding and growth of trade unionism in Europe and North America. Economic analysis related to those labour struggles also played an important role in displacing classical political economy and challenging the ideological hold of the panglossian doctrine of laissez-faire.

    By the end of the 1930s, the 40-hour workweek had become a legislated standard in the United States. Labour unions and many economists welcomed the prospect of a continuing decline. So what happened? Two of the key elements in the interruption were the gradual downgrading and then abandonment by unions of the shorter work time strategy, and the adoption by economists of highly-abstract mathematical theory.

    In 1887, the founding president of the American Federation of Labor, Samuel Gompers said, “The answer to all opponents to the reduction of the hours of labor could well be given in these words: ‘That so long as there is one man who seeks employment and cannot obtain it, the hours of labor are too long.'” In the current period of high unemployment, shorter working time is absent from the AFL-CIO’s Six-Point Agenda for Jobs. In the interim, unions were won over to the idea that full employment could be maintained by government programs to foster economic growth.

    Early in the Twentieth Century, Sydney Chapman’s theory of the hours of labour overturned the naïve view that output varied in direct proportion to hours worked. In the late 1920s and early 1930s, however economists noticed this insight made it difficult, if not impossible, to perform quantitative analysis on economic performance so they introduced a simplifying assumption that the given hours of work were optimal (Hicks 1932/1963, Robbins 1929). Inexplicably, the quantifiers “forgot” that this enabling assumption was contrary to economic theory and to a great deal of empirical observation. Many economists today simply assume that the given hours are optimal without acknowledging they’re making a simplifying assumption.

    Paul Samuelson, one of the pioneers of post-war mathematical theory in economics and of the “Keynesian-neoclassical synthesis”, included a section in his iconic introductory textbook warning against the perils of committing the lump-of-labor fallacy. The demonstration of the alleged fallacy fills a pedagogical niche in introductory economics instruction because, as Paul Swaim (cited in Walker 2007) has observed, economists cannot avoid making abstract, ceteris paribus assumptions (like the simplifying assumption that the given hours of work are optimal, for instance).

    The “fixed amount of work” assumption can be readily shown to be false on several grounds. Students who master the fallacy myth acquire a set piece with which they can impress audiences with their erudition and counter-intuitive cleverness. Unfortunately, instructors have failed to notice the lack of any demonstrated relationship between the fixed amount of work assumption and the policy arguments to which it is unjustly attributed. The pedagogy has backfired. Instead of becoming more aware of the pitfalls of their own orthodox abstractions, economists learn to disparage the imagined foibles of heretics.

    Today, the lump-of-labor fallacy is invoked by Harvard professors and liberal Keynesians as unblinkingly as it is by ‘free-market’ think-tanks and Chicago School troglodytes. In a kind of Gresham’s Law of economic theory, perpetual repetition of the fallacy polemic has marginalized (pun intended) genuine economic analysis of the hours of labour (see Walker 2000 and 2007).

    Part IV

  11. davetaylor1
    April 20, 2012 at 3:35 pm

    It is a measure of how pathetic economic theory has become that we can have grown men arguing the toss like this, with “shrink the government, fools” offered as the only solution to governments acting as incompetently, immorally and insanely as they are now doing.

    In light of #2 Henry ought to be ashamed of #6 and (given the constant misrepresentation – not correction – of Marx and Keynes) of #8. Of course there is not a fixed amount of work TO be done, but there is a fixed amount of work which CAN be done when livelihoods and ability to work depend on monetary incomes. This is determined (at any given time) by the distribution of money and the willingness to deploy it where it is needed.

    That hinges to a considerable degree on whether Governments are entitled to and willing to provide adequate resources (including decent conditions and livelihoods) for work which needs to be done, but for which those whose priority is seeking to acquire (as against earn) money are not prepared to pay for. Whether or not governments are so entitled and willing, they may not be ABLE to when (as in the US and increasingly the EU) such “governments of governments” become dominated by “economic” (non-paying) international financiers.

    For me Spain is the case in point. A couple of years ago Valencia was employing those surplus to the nations’ earning its keep (which it does even by supplying half of Europe with fruit and vegetables), on skill-enhancing infrastructure and art restoration work. Now Spain has grotesque levels of unemployment, and 80% of the increase is due to loss of this intelligent arrangement by malicious destabilisation of its finances by international speculators and bankers.

    In the present circumstances, then, Dean is right, and Alice spot on. In America and increasingly in Europe, fraudulent money-grabbers have devalued not only government and public works but even the welfare of the general public, to such an extent that SALEABLE work which should be SHARED out internationally is being FARMED out internationally to reduce monetary costs. The net result is that nations which had acquired skill bases by doing saleable work are losing them. They will continue to lose them unless such jobs as are left are shared out among those who need them.

  12. April 20, 2012 at 10:20 pm

    Some 150 years ago (1866 to be precise…) civilised mankind started to strugle for a 8-hours a day work regime…. From an average of 10 hours a day (in some sectors up to 12…)
    That was eventually achieved about a century ago… At that time all the distinguished economists and business leaders claimed that a reduction in working hour would be «the end of th world» (as they knew it…).
    Must we now wait for another 50 years to cut working hours to 5 or 6?… With all the machineries and hundreds of thousands of robots ?!!!… Give my grandchildren a break!!!!
    To those readers that may come accross this comment and think of «our number of holidays» (etc.. etc… which our great grand parents did not have, etc etc) just think about yearly averages and «regularity of emplyment». Another way ti put it is by asking yourselves the following. WHAT WILL THEY DO WITH PEOPLE WHEN MACHINES END UP DOING MOST OF THE WORK?… Unemlployment does not come from «lack of work»… It comes from a basic contradiction in the system (yes, a dialectical thing..) which can only be solved either by a major war, as in the past (and even that will not work now…) or by the government imposing upon the system a proportional reduction in working hours…

    • April 21, 2012 at 7:25 pm

      I bet people worked a lot less than 8 hours a day before the Reformation. All those feast days. It was land enclosure that forced the working population into long hours and subsistence wages and that did not come about until the middle of the eighteenth century.

  13. April 20, 2012 at 10:21 pm

    Some 150 years ago (1866 to be precise…) civilised mankind started to strugle for a 8-hours a day work regime…. From an average of 10 hours a day (in some sectors up to 12…)
    That was eventually achieved about a century ago… At that time all the distinguished economists and business leaders claimed that a reduction in working hour would be «the end of th world» (as they knew it…).
    Must we now wait for another 50 years to cut working hours to 5 or 6?… With all the machineries and hundreds of thousands of robots ?!!!… Give my grandchildren a break!!!!
    To those readers that may come accross this comment and think of «our number of holidays» (etc.. etc… which our great grand parents did not have, etc etc) just think about yearly averages and «regularity of emplyment». Another way ti put it is by asking yourselves the following. WHAT WILL THEY DO WITH PEOPLE WHEN MACHINES END UP DOING MOST OF THE WORK?… Unemlployment does not come from «lack of work»… It comes from a basic contradiction in the system (yes, a dialectical thing..) which can only be solved either by a major war, as in the past (and even that will not work now…) or by the government imposing upon the system a proportional reduction in working hours…
    Guilherme

    • April 21, 2012 at 7:26 pm

      I think this went in the wrong place.

      I bet people worked a lot less than 8 hours a day before the Reformation. All those feast days. It was land enclosure that forced the working population into long hours and subsistence wages and that did not come about until the middle of the eighteenth century.

    • davetaylor1
      April 21, 2012 at 8:01 pm

      Good post, Fonsecastate. May I try and develop your conclusion a little?

      It seems to me that beside resource and commodity production there are three other types of “work”: maintenance of our communities, maintenance of the wealth we already have, and development of our skills, understanding and potential capabilities. At the moment this work is shared unevenly and wastefully between full time workers, volunteers and the unemployed. My suggestion is that we should TIMESHARE it: your “5 or 6 hours” industrial work leaves scope for time in our own communities looking after them, getting involved in education, healthcare and/or infrastructure projects, and challenging ourselves doing our own thing: anything from sport and growing prize roses to self-satisfying technical maintenance, competing qualitatively in the arts, and development of prizeworthy options for the future.

      One reason why we are not doing this is the linking of livelihoods to employment and the financing of investment through monopoly and public taxation (private ownership permitting private taxation in the forms of interest and rent). People are being forced to seek investments or work which enable them to pay their taxes and rents, and unnecessary employment to generate markets for investment. Were we given an income for being good citizens rather than employees, then the taxations and private ownership would be unnecessary, for we would already have the wherewithall to provide the markets and to volunteer our services on work which actually needs doing and is not now being adequately done.

  14. Alice
    April 21, 2012 at 1:32 am

    Yes Dave – quite correct. “Governments of governments is what we now have governing – and the “governments of governments” are for the most part “shrink the government” advocates whose membership is dominated by international financiers.

    This is not government at all.

    Lets face it.

  15. Alice
    April 21, 2012 at 1:43 am

    But far worse than that, these international financiers squabble amongst themselves to claw and tear every bit of public infrastructure that ever existed anywhere out of the hands of governments and the public (and usually then proceed to fleece it bone dry at more exorbitant prices until it becomes dilapidated and even non functioning for purely short term gain – all theirs) like the bunch of ugly vultures they are.

    They are not nation builders. They are nation destroyers. They do not create employment. They destroy it.

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