Work-Sharing Works for Germany, Netherlands

Economists Kevin Hassett and Dean Baker make the case for "work-sharing" in today's LA Times:

The idea of work-sharing is simple. Currently, firms mostly respond to weak demand by laying off workers. Under a work-sharing program, firms are encouraged by government policy to spread a small amount of the pain across many workers.

In Germany, for example, which has used work-sharing aggressively in this downturn, a typical company might reduce the hours of 50 workers by 20% rather than laying off 10 workers. The government would then provide a tax credit to make up for most of the lost pay, with the employer kicking in some as well. In a typical arrangement, a worker might see his weekly hours go down by 20%, and his salary go down by about 4%.

This policy has kept the unemployment rate in Germany from rising even though the country has seen a sharper decline in GDP than the United States (see chart above). The Netherlands, which also uses work-sharing, has managed to keep its unemployment rate near 4% even though its GDP also has fallen more steeply than in the United States.

The cost to the government of going this route would be roughly the same as with the current unemployment insurance program. The big difference is that instead of unemployment benefits that effectively pay people for not working, we would be paying people for working shorter hours.