Reduced hours vs. layoffs good strategy in recession

Posted March 30, 2009, at 7:53 p.m.

It is time to take this recession seriously. Despite media attention to the slowdown, its human costs have been consistently overlooked. Even if Congress’ meager stimulus and Treasury Secretary Tim Geithner’s bank bailouts work and the decline in GNP slows, unemployment will grow for a time and persist at stubbornly high levels. The costs lie not merely in material comforts but also in loss of skills and morale. How can immediate government initiatives, our churches, our communities and workplaces both alleviate suffering and lay the foundations of a more just and stable economy?

Even employed workers now are subject to extraordinary economic vulnerability. Some profitable businesses take advantage of growing unemployment to demand wage givebacks from employees. That may strengthen these businesses temporarily, but as more businesses engage in such practices, the consumer market shrinks.

Many contemporary business analysts assure us that fears of a depression are overblown because we now have “tools” to combat recession. Those tools, however, include an unemployment compensation system they have

pecked away at over a generation. It is a myth — and in today’s economy a dangerous one — to assert that most unemployed workers can count on government help. Labor economists point out that of the 12.5 million unemployed U.S. workers fewer than 5 million are receiving unemployment insurance benefits. Improvements in the unemployment compensation system regarding levels, eligibility and length of coverage are essential both to limit individual suffering and to prevent the economy from spiraling into deeper distress.

At least one strategy blends both short- and long-term issues. Even a market economy where workers are fairly compensated is prone to recession. Productivity grows and large segments of the population become satiated. Government programs or renewed bursts of advertising could then boost spending. But alternatively, work-ers can and should have the opportunity to take productivity gains in the form of shorter hours for the same total compensation.

Economist Dean Baker has suggested that government could both foster job growth and promote the long-term goal of work reduction. In a recent interview he advocated “a tax credit to employers for giving workers paid time off. For example, if employers offer paid parental leave or sick leave, or paid vacation, then the tax credit would cover the lost work. This can be a quick way to get millions of people back to work. Suppose that employers of 100 million people give their workers an amount of additional paid time off that is equal to 5 percent of their work time. These employers would suddenly have demand for 5 percent more workers, or 5 mil-lion workers. I can’t think of a quicker, less bureaucratic way to create jobs.”

This leisure time tax credit could be funded by a small tax on currency and derivative trades, a nonbureaucratic way to discourage the speculation and deceit that have destroyed jobs. Troubled businesses could voluntarily reduce hours across the board rather than layoffs, Here in Maine the nonprofit Jackson Laboratory and Maine Audubon Society are employing these strategies to limit some job losses.

My own back-of-the-envelope math: If a business with 100 workers had to reduce its work force by 20 percent, it could lay off 20 workers or it could reduce everyone by about eight hours per week. Hours-reduction strategies serve the larger economy better than wholesale layoffs. Workers on 80 percent normal income will need to spend most of what they earn. In the typical layoff scenario, the workers earning normal full-time salaries will save more, especially as they see colleagues being axed.

Hours-reduction for all could also reduce the trauma of unemployment and help retain morale and skill levels. In addition, with a shorter workweek employees and employers could jointly restructure the workweek to reduce commuting and childcare costs.

Work-sharing reflects and encourages solidarity in workplaces. Historically, the labor movement has been as committed to reducing work as to its fair compensation. In the long term, regular hours reduction pegged to productivity increases would blunt surges of overproduction and provide more leisure time, allowing a range of cultural activities to displace some consumer drives and reduce environmental impact. It is not too soon to begin a conversation about the short- and long-term implications of such a strategy.

John Buell is a political economist who lives in Southwest Harbor. Readers may reach him at jbuell@acadia.net.

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