Arnold Kling  

PSST: Work-Sharing May Not Work

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Don Peck writes,

Today, American companies facing weak demand typically lay off workers, even though that decision can be costly down the road (rehiring and training are expensive). A work-sharing program would allow companies to instead make temporary, across-the-board reductions in hours worked by (and wages paid to) the same number of employees

Let us look at this from a PSST perspective. When we think of economic activity as patterns of sustainable specialization and trade, then economic activity consists of outsourcing. If you limit the hours that I can work, you limit my ability to outsource. Therefore, you reduce economic activity. PSST would say that laws mandating reduced hours or work-sharing will lead to less employment, not more. One of the advantages of the PSST perspective is that it leads you to think about what economic activity means. It gives you an alternative to the "lump of work" thesis that seems to be the basis for the work-sharing proposal.

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COMMENTS (7 to date)
Oneeyedman writes:

I don't understand how you are using the word "limit". You can still quit and get a full time job elsewhere - - if you can find one.

Andy writes:

There are, however, a lot of people who would like to work fewer hours. I don't have the link at the moment, but I recently read a survey that said 60% of working mothers of young children, if given the choice, would word part time.

Perhaps a bigger question is why there aren't more part-time opportunities.

Another thing are German "mini-jobs" which are jobs with limited pay and hours that aren't subject to taxation. Interesting concept.

collin writes:

I don't think it is the PSSST model but the worker model in the US with corporate America. Overall, companies would rather distribute the workload to other workers instead of cutting back hours. Since most office environments are salary this just means companies are expecting workers to better strategize their workloads. This is why nomial wages are not falling (Krugman's question) and the job market is slow to turn.

Why is it that US workers don't take all their vacation time? Same reason.


KnowPD writes:

Sticky wages drive the salary worker to avoid reduced hours. Say I agree to a reduce pay for reduce hours scheme at my current employer. This signals that I'm willing to work for less money permanently. Since raises take effort over time to earn, there's a disincentive to agree to a reduction in salary which could be permanent. If my employer desires to cut my salary and hours, I would not accept this and resign. Temporary unemployment is desirable to a permanent pay cut. The approach to cut hours and pay only works for people without mobility and they tend to work hourly to begin with anyway or lower level performers who have no other prospects.

Women with children are, however, willing to take pay cuts (potentially permanently) to work reduced hours. However, many professional jobs consist of responsibilities and not hours at desk so it's difficult in practice for it to be a true trade off. A strong cultural shift of the normative number of hours worked would be required for change and that won't happen in a competitive economy on a company by company basis. Until then, professional women choose careers such as teaching with a more desirable expected hours worked.

Lord writes:

This is flawed on its face. Your ability to outsource may be reduced but others, the would be unemployed, would be enhanced. Yes, marginal productivity will be reduced but that is because we don't count the unemployed. Consider a country that experiences an exchange rate shock. Their ability to outsource may be reduced but their ability to work to make up for it is enhanced, yet the only difference is everyone is affected by exchange rates while only the unemployed are affected by unemployment.

Dan Hill writes:

There are two separate issues mixed up here - reduced wages for the same hours and reduced hours.

One of the biggest problems with reducing hours is benefits. Once you fall below the full time threshold for benefits you are better off being fired so you can collect unemployment insurance while looking for a new full time position with health insurance. Plus there are all sorts of other fixed costs imposed by government that mean there are cost penalties in splitting a given amount of work over more workers.

MingoV writes:

I believe that in limited circumstances it makes sense for a business to choose to reduce worker hours rather than lay-off workers. For example, a construction company has three large buildings under construction. One will be finished in two weeks, the others are six months from completion. Two months from now, the company will start construction of another large building. The options for that six week gap are to pay a third of the workers to do nothing, lay off a third of the workers, reduce all worker hours by one-third (while retaining benefits), or some combination.

The first option wastes money. The second inflicts a serious financial hit on a third of the workers (who lose all pay and benefits) and could result in losing trained workers to a competitor (which could be a serious problem if new employees need lots of training). The third method retains the workers but inflicts a minor financial hit on all of them. In this type of circumstance, that may be the best choice for the company and its workers.

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