|Time for Jobs: How Shorter Work Weeks / Work Years Can Be Stimulus
by Dean Baker
IT IS important that some version of President Obama's stimulus
package get approved by Congress as quickly as possible. The package
will be an important first step toward stopping the downward slide.
However, the package is only a first step. As President Obama's own
economic team's analysis showed, the package would still leave us with
7.0 percent unemployment two years from now (roughly the current
rate), even if things go relatively well. And it is easy to imagine
scenarios that are worse than the baseline assumed in this analysis;
for example, a collapse of the banking system due to a tidal wave of
bad debt or a run on the dollar resulting from our chronic trade
deficit. In short, we should be constructing plans to boost the
economy that go beyond this stimulus package.
I have already written about one possibility: health care insurance.
The government can quickly provide a boost to demand by awarding
generous tax breaks to employers for covering workers who do not
already have insurance and for making current policies more generous.
These tax breaks can be coupled with the opening of Medicare to anyone
who wants to buy in, thereby getting a jump start on President Obama's
health insurance program.
The other obvious way to provide a quick boost to the economy is by
giving employers tax incentives for shortening their standard work
week or work year. This can take different forms. An employer who
currently provides no paid vacation can offer all her workers 3 weeks
a year of paid vacation, approximately a 6 percent reduction in work
Alternatively, employers may cut the standard workweek, say from 40
hours to 36 hours, a 10 percent reduction in work hours. Employers
could also adopt policies such as offering workers paid sick leave. If
this averaged 5 days a year, this would come to a reduction in hours
of 2 percent. They could even offer paid parental leave.
These policies would bring the United States in line with the rest of
the world. In other wealthy countries, paid vacation time is standard,
with the average being close to 5 weeks a year. Similarly, we are the
only wealthy country that does not require employers to give workers
paid time off for parenting or to provide paid sick days.
The government could give employers an incentive to provide paid time
off now by giving tax breaks to cover all or most of the paid time
off. For example, if firms gave workers 3 additional weeks of paid
vacation a year, the government could offer to provide a tax break for
two years that would cover this cost up to $2,500 per worker for the
two years covered by the stimulus package. This sum would be
sufficient to fully cover three weeks of vacation for workers earning
less than $40,000 a year, which would be most workers in the economy.
This is a neat form of stimulus because it directly gives employers an
incentive to hire more workers, as can be easily shown. Suppose
employers of 50 million workers take advantage of this deal, cutting
their workers' time by an average of 6 percent as discussed in this
example. These 50 million workers will have exactly as much money to
spend as they did previously, so presumably their consumption will not
However, the employer will now be getting 6 percent less work
performed because everyone is only working 49 weeks a year, rather
than 52 weeks. Since demand for the companies' products will not have
changed, and the companies' labor costs have not changed (the
additional cost was picked up by the government), they will presumably
want to hire roughly 6 percent more workers to make up for the lost
If employers of 50 million workers took up the deal, then this 6
percent would translate into 3 million jobs. This would be a very good
start for getting the economy back towards full employment.
There are of course many other benefits that workers could get by
working fewer hours. They would have more time to spend with their
children or pursuing hobbies and other non-work activities. In a
country where many couples rarely see each other because they
alternate work schedules to allow for child care, some additional free
time could have enormous value. Arguably, it would even be beneficial
for the environment.
Of course, the plan is that the tax credits just run for two years or
long enough to help the economy get back on its feet. After the tax
credits are ended, companies may go back to their current practices,
but it is also possible that workers will value a shorter work
schedule so much that the practice is left in place. Let's hope that
we have the chance to find out.
-- This article was published on January 26, 2009 by The Guardian Unlimited.