It is encouraging that President Obama recognizes his obligation to take steps to restore the economy to full employment. The government alone has the power to lift the economy out of this downturn. Eventually, the private sector will be able to absorb the unemployed, but there are no remotely plausible projections that show private sector employment closing the gap anytime soon.
There are many useful steps that President Obama can take to boost the economy. These steps include additional aid to state and local governments to stem the tide of layoffs in this sector. A youth jobs program would also give a chance to millions of teens in pockets of especially high unemployment. In addition the slack in the economy provides a great opportunity to address long-neglected infrastructure needs.
However the quickest, and likely cheapest, way to increase employment would be to aggressively promote a policy of work sharing, for which President Obama already proposed some funding in his 2012 budget. This path has been effectively followed by Germany. Germany has a lower unemployment rate than it did at the start of the downturn even though its growth has been no better than growth in the United States.
Work sharing is an effective alternative to an irrational system of unemployment insurance. In the current system, workers are effectively paid to be completely unemployed. Workers will get benefits from the government if they are laid off, however they get nothing if their hours are shortened.
There is no public interest in encouraging employers to lay off workers. In fact there is a public interest in keeping workers employed, even if at shorter hours. If workers stay on the payroll, they maintain their contact with the workforce and continue to upgrade their skills. By contrast, if they are laid off and end up as a victim of long-term unemployment, they are likely to lose contact with the working population and their skills could deteriorate. This could make it significantly harder for them to find new jobs.
To prevent this situation, the government should make work sharing an attractive alternative to layoffs. If just 10 percent of the workers who lose their job each month could be retained as a result of an effective work sharing program it would be equivalent to creating 2.4 million jobs over the course of a year.
This simple logic is the reason that work sharing has been embraced by a large number of economists and policy analysts across the political spectrum, including experts at the American Enterprise Institute, the Center for American Progress, the Center for Law and Social Policy, the Economic Policy Institute, National Employment Law Project, the New America Foundation.
There are currently two different routes to promote work sharing being considered in Congress. One route would expand the programs that exist in 20 states. Its lead sponsors are Rosa DeLauro in the House and Jack Reed in the Senate. The other would provide an employer tax credit to subsidize costs for companies that participate in the program. Representative John Conyers is the lead sponsor for this bill, which will likely be introduced in the coming weeks.
Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, including False Profits: Recovering from the Bubble Economy. This statement was issued by CEPR on 7 September 2011.