The argument for work sharing
Economists Betsey Stevenson and Justin Wolfers discuss the idea behind work sharing, which would allow workers to get partial benefits when companies cut parts of their job.
Kai Ryssdal: We spent Friday -- as I'm sure a lot of you did -- thinking about yet another so-so unemployment report and what people might be about it.
Then we came across a Bloomberg column from economists Betsey Stevenson and Justin Wolfers about "work sharing." That's the official name for everybody works fewer hours, but we all keep our jobs. Of course, then everyone also gets paid less. But now with a little money from the feds, states are starting to offer some of those reduced-hour workers a partial unemployment check. Same job, fewer hours, no one gets laid off.
Justin, Betsy -- thanks for being here.
Justin Wolfers: Always a pleasure, Kai.
Betsey Stevenson: Great to be here.
Ryssdal: There's an economic rationale for this because Justin, as you point out in this piece, the way the system for years has operated is that it makes sense to lay people off. It's economically smart to fire people, right?
Wolfers: Yup, unfortunately that's true. You fire 10 percent of your workers, they get unemployment insurance. You keep all your workers and cut their time by 10 percent, no one gets unemployment insurance and so that tilts the playing field towards firing people rather than cutting their hours, which a lot of workers would prefer.
Ryssdal: So Betsey, run me through the Tax Relief and Job Creation Act that the president signed this spring. What does it do that might change this and then let's talk about where it goes from there.
Stevenson: So what the president's proposal does is it creates a federal work-sharing program that gives just a kick-start and if states in the meantime adopt a permanent program, they're going to get some financial incentives through the federal government to help compensate them for the costs of adoption and promotion.
Ryssdal: So Justin, American Public Media could cut my hours by 10 percent and then I would get some kind of prorated unemployment benefits, is that the basic idea?
Wolfers: You would get a tenth of the unemployment insurance earned by a high paid radio personality. Absolutely.
Stevenson: So that's why it's still state-based. The states determine how much your UI check amount is and you would get a prorated amount. So it really would be 10 percent of what you would get if you were laid off. That gives people and it gives employers a temporary period of time to figure out whether or not they're going to be able to boost their employment back up to full levels.
Ryssdal: And then on the back-end, Justin, I imagine it gives employers some flexibility because instead of having to hire and bring on new people, they've got this trained core, ready to get back up to full employment.
Wolfers: Absolutely. So you keep workers in the workforce. It keeps them job ready. The jobs ultimately return and you can ramp up production fairly quickly.
Stevenson: But there's actually another aspect of it that people often don't think about it, particularly for small employers. It's really painful to lay people off because you typically don't have a bunch of workers with absolutely identical skills, all who do the exact same thing. And when you lay someone off, your other workers need to fill in for that person who's gone and that can be challenging. So if instead you're cutting everyone's hours, that's really what scaling back production looks like -- doing all the same tasks, but doing fewer of them.
Ryssdal: Betsey, this doesn't do anything for people who now in this economy have been out of work for 18-20-27 months. If this pilot program kicks in, it's only going forward.
Stevenson: Well, that's true. It's for new layoffs, new reductions. But what this entire economy, what everyone needs, is for there to be new hiring and fewer people looking for those jobs.
Wolfers: Here's the way to think about it. You own a business, you're thinking about hiring someone, but one of the things you're worried about is, is this recovery going to last? You don't want to hire someone thinking you're going to have to fire them next week. What work sharing would do is you can hire them -- realizing that if you do hit slower times, you'll just cut their hours a little. So it reduces the uncertainty of hiring new people and that's the way in which it helps those who are unemployed today.
Ryssdal: Not that economists ought to come up with policies that are going to fix all this stuff, but -- how to put this -- where have you guys been? Because the economy is four years into recession now, the Germans have been doing this for a while, it's not like this is new.
Stevenson: This problem was raised in the 1990s. People have known about it. I think if you want the truth -- why did it take so long to get something like this passed -- it's a small fix. This is not going to turn around an economy that lost 9 million jobs, but it is going to help. I think we sometimes have to do the small things because small things add up to big things.
Ryssdal: Economists Betsey Stevenson and Justin Wolfers. They're visiting at Princeton University this year. Thanks a lot you guys.
Wolfers: Thanks Kai.
Stevenson: Oh, thanks. It was good talking with you.