|Stimulus and Jobs: We Can Do Better
By Dean Baker
The Obama administration came out with its first set of numbers on the
jobs impact of its stimulus package. It's pretty much along the lines
of what was predicted. To date, the package has created close to 1
million jobs. That is good news, but in an economy with more than 15
million unemployed workers, it is not nearly good enough. We need to
do more, much more.
Fortunately, there is an easy and quick way to begin to get these
unemployed workers back to work. It involves paying workers to work
shorter hours. The mechanism can take the form of a tax credit to
employers. The government can give them a tax credit of up to $3,000
in order to shorten their workers' hours while leaving their [real
total annual?] pay unchanged. The reduction in hours can take the form
of paid sick days, paid family leave, shorter workweeks [with the same
pay?] or longer [paid?] vacations. The employer can choose the method
that is best for her workers and the workplace.
[it would be nice to know how this would be enforced.]
If take [annual real? take-] home pay is left unchanged as a result of
the credit, then demand should be left unchanged. If workers are on
average putting in fewer hours and demand is unchanged, then employers
will need to [hire] more workers. [This is true unless increases in
labor intensity (effort/hour of labor-power hired for pay) and/or
effectiveness (salable output per unit of effort) completely
compensate for the cut-back in hours per worker.]
This logic is about as simple as it gets. The process is also quick
and cheap. 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
estimates of the cost per job under the administration's stimulus
package. [But note that it saves jobs but not hours of work.]
We don't even have to speculate about whether this sort of short hours
arrangement can work. Germany put a short hours program in place at
the start of its recession. Its unemployment rate today is 7.6
percent, about the same as the unemployment rate it had going into the
recession. [Is unemployment the only relevant measure of "labor market
slack"?] Imagine that workers in the United States, like workers in
Germany, were dealing with the recession by putting in four day weeks
(while getting paid for five) or getting an extra two weeks a year of
paid vacation. This sure beats being unemployed or being threatened
with unemployment. [agreed.]
Seventeen states already have a "work-share" program in place that
allows employers to use unemployment insurance money to cover a
reduction in work hours, without a corresponding reduction in pay.
More than 100,000 layoffs have been prevented as result of this
Senator Jack Reed of Rhode Island has a bill that would increase
funding for work-share programs and remove some of the bureaucracy
that makes it difficult for employers to take full advantage of the
programs that currently exist. The bill would also provide start-up
money for the states that do not have work-share programs.
The Reed bill would be a big step towards following the Germany model,
taking advantage of a program that is already in place. It could very
quickly make a big dent in the unemployment rate, by preserving many
of the jobs that are now being lost.
In this respect, it is important to clear up a common confusion about
the economy. Every month, we get a figure from the Labor Department
for the new jobs created or lost. However, this is a net figure.
Approximately 4 million people leave their jobs every month, about
half of these workers, or 2 million, lose their jobs involuntarily. If
the economy creates more than 4 million new jobs, then we will have a
positive jobs figure for the month. If the economy creates less than 4
million new jobs, then the Labor Department will report that the
economy lost jobs in the month.
Suppose that this work share program reduced the number of people who
lose their jobs involuntarily by 20 percent, or 400,000 workers per
month. This would have the same effect to our job count as adding
400,000 additional new jobs. If this rate could actually be maintained
over a full year, then it would imply that the economy would generate
nearly 5 million new jobs. [but hours per worker would be cut.]
All the projections show that the unemployment rate is likely to
continue to rising for the immediate future and remain high for years
to come. The Congressional Budget Office projects that the
unemployment rate will average 10.2 percent next year and even in 2011
it will average 9.1 percent. If this projection proves accurate it
would be a disastrous scenario for tens of millions of people.
There are quick and effective ways to increase employment, with
shorter hours at the top of the list. Making tens of millions of
people suffer for economic mismanagement and the greed of the bankers
[to say the least] is not acceptable. We must do something.
-- This article was published on November 2, 2009 by Truthout.
[It's reasonable to say that it's not jobs that count, but job-hours
per worker? This program saves jobs by cutting hours, but (if it
works) keeps job-hours constant. Job-hours are far below what they
were 2 years ago, because of the recession.
[It sounds like Dean is saying that this program would solve the
problem of unemployment, but instead, it makes unemployment more
palatable to large groups of workers by spreading the burden much more
widely. That's nice: it's a version of unemployment insurance, in
which the burden of the recession is spread widely rather than being
borne solely by those who are laid-off or who suffer from cut-backs in
[But normal fiscal stimulus is supposed to increase both the number of
people employed and the hours worked per week. I guess the tax credit
that employers would get would cause this kind of stimulus.
[By the way, in 2007 weekly employment*hours for total private
employers = (115,380 thousand employees)*(33.9 hrs/employee-week) =
3.9 billion hours, while in Sept. 2009 (prelim, ), employment*hours =
(108,544 thousand employees)*(32.9 hrs/employee-week, SA) = 3.6
billion hours, which is about a 9 percent drop.]