Shorter work weeks can reduce unemployment

AS AMERICANS WATCH jobs disappear, economist Dean Baker says we could reduce unemployment if the federal government would offer tax incentives to employers who shorten their standard work week or work year.

Any form of fully-compensated time off — paid vacations, sick leave, or cutting the standard work week — tends to reduce unemployment. Employees who take time off for vacation or illness must be replaced, bringing more people into the workforce. Offering tax incentives for providing these benefits would reduce their cost to the employer, and that would make it more attractive to provide these benefits.

Americans are often surprised to learn that in other developed countries, paid vacation time is standard, with the average being nearly five weeks a year. Similarly, the United States is the only wealthy country that does not require employers to give workers time off for parenting or provide sick days.

A tax break of $2,500 per worker for the two years covered by President Obama’s stimulus package would cover three weeks of vacation for workers earning less than $40,000 a year — which is most of the workers in the economy.

This kind of incentive translates immediately into jobs, because the employers need to replace the workers on vacation. If employers with a total of 50 million workers took advantage of this incentive, they would need about three million replacement workers. The cost to taxpayers would be $125 billion — significantly less than the $182 billion the Federal Reserve has earmarked to bail out AIG.

CLASP: State work sharing programs are being underutilized

MANY STATES ALREADY have programs on the books that could be used to reduce layoffs, according to the Center for Law and Social Policy (CLASP). Work sharing programs allow an employer to temporarily cut costs by reducing the number of regularly scheduled work hours for the business, using state funds to subsidize their workers’ pay.

For example, a firm faced with declining sales could reduce its entire work force to four days a week instead of five, a reduction of 20 percent, instead of laying off 20 percent of the workers. Through the work sharing program, those workers could collect unemployment insurance for the fifth day and retain their employer’s health care and other benefits.

“Work sharing benefits employees and employers,” said Neil Ridley, CLASP senior policy analyst and author of the paper, “Work Sharing — an Alternative to Layoffs for Hard Times.” [PDF] Workers lose less than a day’s pay from their weekly income, while employers retain their trained and experienced workforces. Communities benefit as well, because social service agencies are not faced with helping the employees who would be jobless without the program.

Currently, 17 states operate work sharing programs. They are used far less frequently than regular unemployment insurance, but in recent months states with these programs have reported a spike in participation. Work sharing usage has soared in states hard hit by the housing market collapse, such as Arizona, which saw a 117 percent increase from 2007 to 2008, and Florida, which saw a 272 percent increase, according to data compiled by the Employment and Training Administration of the U.S. Department of Labor.

Ridley believes more states should enact such programs. In 1982, the federal government enacted a temporary national program to combat an unemployment rate only slightly higher than we are experiencing now. In 1992, federal legislation enabled states to create these programs, but so far only 17 have done so.

States could benefit if Congress addresses limitations of the federal law that allows states to adopt short-time compensation or work sharing programs. Another step is to increase technical assistance to states and provide direct outreach to employers, business organizations, unions, and other groups. A third, more ambitious, step would be to establish a temporary federal program that would stimulate expansion of current state programs and encourage more states to adopt work sharing.

“While work sharing can help employees and employers, it is not a magic bullet,” Ridley said. Work sharing is most useful for companies and industries in which it is possible to reduce hours and modify work schedules, and it is not designed to avert a permanent layoff or plant closing. In addition, there is potential for abuse if a work sharing effort is not carried out with input from workers or their representatives.

But when the nation is facing what many believe could be double-digit unemployment by the end of 2009, a program that has proven it can reduce some layoffs is worth promoting.