The Concept
In the last blog post I mentioned
the need to think ahead and to incorporate some economic-relief ideas that can
better prepare us for a shortage of work in the future. One such idea that
seems to be a fruitful prospect is that of work sharing.
Work sharing has been a hot topic
of discussion in the conversation of economic recovery from this most recent
recession. Although this is not a new concept – as the idea was originally
implemented during The Great Depression of the 1930’s and again in the later
recession of the 1990’s – countries that practiced some form of work sharing in
the recent recession fared better than those that did not have similar economic
‘safety nets’ in place.
Not to be confused with job
sharing which is a voluntary contract between two people to share a single job
position – essentially splitting that full time job into two part time
positions – work sharing is “a reduction of working time intended to spread a
reduced volume of work over the same (or similar) number of workers in order to
avoid lay-offs” (ILO). Put more simply, instead of a company laying-off
20% of their employees, they can instead reduce labour or working hours by 20%
and retain these employees, while also partially compensating these employees
for lost hours – in the end, let’s say, the employees work 20% less hours for
10% less pay. For example, say the firm that Angela is working for cuts her
hours from 35 to 25 hours per week, thus reducing her salary from $1000 to
$714. Angela is then compensated $171 or 60% of her lost salary by the government
(which is more affordable than compensating her entire lost salary. She is now
making $885. She is making less than she was during her regular full-work
employment (allowing the company to spread around that saved income), but she
is making more than she would be making on unemployment, which would most
likely be half of the total lost salary, so just over $500(Hassett).
Ultimately work sharing “is a
measure designed to share the burdens of a difficult economic situation – not
only among workers, but between workers, employers and government as well” (ILO). The worker benefits from better
pay than unemployment insurance alone and isn’t forced to join the growing
ranks of the unemployed and look for work in a weak labour market. This is
actually a significant success of the program, as workers who are “unemployed
for long periods of time have great difficulty getting re-employed,” because employers
are “reluctant to hire workers who have been out of the workforce for 1-2 years
or longer” (Baker). The short work allows the employee to maintain work skills
as well as upgrade skills in some cases (as some work-share programs offer
additional training and seminars during reduced hours of employment). The
company benefits from eliminating costly and time-consuming firing and
(re)hiring as well as (re)training costs when production increases again and is
able to ‘jump back into’ full production much quicker. Finally, the government
benefits from paying out less compensation than they would if covering full
unemployment benefits and is able to deal with an overall lower unemployment
rate. On top of this, even on reduced wages, if more people are still earning
an income, there will still be household spending occurring (albeit also decreased).
Even this reduced trickle of income flowing into the economy is helpful in
aiding economic recovery. Also, if companies are able to ‘ramp up’ their
production faster when the economy is back in recovery, then the economic
recovery will also be that much faster.
The International Labour Organization offers five key elements that
should be included in work sharing policies and programmes:
1. The
reduction of working hours for all workers in a company or a specific work unit
within a company, in lieu of layoffs.
2. A
corresponding (pro-rata) reduction in earnings (total wages).
3. The
provision of wage supplements to affected workers to ‘cushion’ the effects of
temporary reductions in earnings.
4. The
establishment of specific time limits on the period of work sharing (to ensure
that the programme is a temporary measure in response to the economic crisis).
5. The
creation of links between work-sharing programmes and training/retraining
activities.
The Plan in Action
The country that has been
credited the most success with this type of economic relief program is Germany
with their Federal work sharing programme called Kurzarbeit, which was “by far
the largest work sharing programme in the world during the crisis, reaching a
maximum participation of approximately 64,000 establishments and 1.5 million
employees at the height of the crisis in mid-2009” (ILO). The success of Germany’s Kurzarbeit is being widely discusses
because Germany’s unemployment is “1.5 percentage points lower today than it
was at the start of its recession,” even though Germany’s “growth performance”
has actually been “worse than the U.S.,” and it entered the recession in a
worse off position than the U.S. (Baker). Work sharing programs were also
implemented in Austria, Canada, Belgium, France, Switzerland, the Netherlands,
and small programmes in a few individual states in the United States (ILO). Much of the discussion has
compared Germany’s handle on the recession against the U.S., and although an
exact replica cannot be adopted in the U.S. and the higher population count
would also increase the cost of wider work sharing, research still seems to
suggest that a Kurzarbeit-esq implementation would still be more affordable
than the economic stimulus. Germany’s program has cost $2.85 billion, and it is
estimated that implementing such strategies in the U.S. would cost around $10.6
billion compared with the $787 billion U.S. economic stimulus that it has incurred
(Hassett).
The Implementation
According to the International Labour Organization, these
programs are more likely to succeed if:
1. The
government takes an active role in promoting work sharing
2. Work-sharing
schemes are negotiated and implemented through social dialogue at the national
level and via collective bargaining at industry levels and in specific firms.
3. Wage
supplements (e.g. partial unemployment benefits) are provided to partially
offset reductions in workers’ earnings.
4. Work-sharing
schemes are inclusive, covering regular and non-standard workers.
5. Managers
make the necessary changes in the work environment to make work-sharing pay
off, including redesigning work processes when needed and supporting training.
Although other countries have
used work sharing successfully, in the U.S., “work sharing requires amending
state unemployment insurance laws” (Rix). Right now workers in the U.S. are not
compensated for lost hours or lost pay. The way that the unemployment laws are
set up, those on EI “get roughly half of their pay in benefits,” which “encourages
employers to go the route of layoffs rather than shortening work hours, since
that is the only way that workers can benefit from unemployment insurance”
(Baker). In order for there to be any success with such a ‘economic relief’
program, laws will have to first be amended to ensure that partial compensation
accommodates short-work employees and greater benefits the employer as well.
One way to accomplish this is to offer (benefits to companies to work-share
instead of layoff).
The Objections
Of course like
any good theory, there are always going to be some objections to it. One
primary objection is that work sharing “only postpones lay-offs that are
inevitable at some point in the future and are thus a ‘waste’ of resources” (ILO). Indeed it was actually estimated
that after the 1990 recession wherein job sharing was implemented, “half of all
the workers whose jobs had been preserved as a result of the programme were
eventually laid off after they left the work sharing scheme” (ILO). Even if this is the case,
postponing unemployment and reducing the time of unemployment are still signs
of success of such programs and should be seen as motivators to adopt them,
along with the attempt to preserve existing jobs.
Another objection has been that “such
schemes may have the effect of keeping economically non-viable enterprises on
‘life support’, thereby interfering inefficiently in the normal processes by
which enterprises are created or go under” (ILO).
Although this may seem like a harsh concept to be in favor for, the necessity
to let the weak fall off so that the strong can take their place is essential
for progress and development. Reminiscent of Darwin’s theory of Natural
Selection in On the Origin of Species, having the weak die off and the strong
survive ensures that that species only gets stronger and more capable of
adapting to and thriving in its environment. Letting sinking businesses go
under, then, actually works to encourage the growth of a stronger, more
competent economy.
In order to avoid upsetting the
natural balance of things, work sharing programs can be specifically targeted
“on firms experiencing temporary problems resulting from a cyclical downturn –
rather than those facing economic adjustments” (ILO), although this is not always that recognizable a differentiation.
There are a few methods that can be implemented to not only ensure that
stronger firms benefit and that employees partaking in work share programs don’t
inevitably get let go anyway; these are ensuring that there is an “explicit
requirement that the positions supported by the programme be continued
following the end of the subsidy period,” and another strategy is “a
requirement that firms repay all or part of the subsidy payments if the
employee is laid off after the programme ends” (ILO). Most importantly, though, is a safe-guard to ensure that
reduced hours and wages are not a permanent thing, but remain merely a
temporary relief, which can be controlled by setting “time limits on
work-sharing subsidies to ensure that the schemes do not block inevitable
structural adjustments” (ILO).
Not every system is going to be
fool-proof though, and there will be some who fall through the cracks, but even
if some employees who were on work sharing programs do find themselves out of
work at the end of the subsidy period, the work sharing programme can still be
seen as creating a positive outcome, because the employee was able to maintain
his or her training and skills, maintain a foothold in the workforce, and had
the time and necessary skills to prepare to move to new jobs when the economy
recovers (reducing the risk of long-term unemployment).
In Conclusion
Of course we can assume that
these efforts are no longer needed when we are in a period of economic
recovery, but the fact that an idea from the 30’s came back into use in 90’s as
well as in this past recession shows that having such ideas on retainer is
never a bad thing. What needs to be considered when moving forward, is putting
things in motion to safeguard the future. What I mean by this is to think of
the pros and cons of this method and to tailor it to work even more effectively
and efficiently in the future. Those countries that do not have similar work
sharing schemes in place might be wise to “develop and implement them in
preparation for the next economic downturn,” and countries that do would be
wise to “carefully evaluate them and make any necessary revisions” (ILO).
Work sharing is
not a fail-safe and it may not generate a whole bunch of new jobs out of the
ruble of the recession, but it is a good method to think ahead for dealing with
hardship: it can mean the difference between a country keeping its head above
water and staying afloat, weathering the storm, and completely sinking and
drowning. If work sharing policies are
properly designed and implemented, they enable “companies not only to survive
the crisis, but to be well-positioned to prosper when growth returns” and they
assist economic recovery by “minimizing the costs of social transfer payments
and, ultimately, social exclusion for governments and society as a whole” (ILO).
Sources:
Baker, Dean. “Work Sharing: A Creative Way to Avoid Unemployment,” The Guardian Unlimited,
February 27th,
2012. Web. Center For Economic And Policy Research, www.cepr.net/index.php/op-eds-&-colums/work-sharing-a-creative-way-to-avoid-unemployment,
accessed April 2nd, 2014.
“Global Jobs Pact
Policy Briefs: Work Sharing – Working Time Adjustments As a Job Preservation
Strategy,” Brief No 18 International Labour Organization (ILO), 2010. Print (pdf).
Hassett, Kevin. “U.S. Should Try Germany’s Unemployment Medicine,” Bloomberg, November 8, 2009.
Web. www.bloomberg.com/apps/news?pid=newsarchive&sid=ax3kyE3blLDY,
accessed April 2nd, 2014.
Rix, Sara. “Sharing Work When Times Are Tough,” The Huffington Post, 20th Aug 2013. Web.
accessed April 3d
2014.
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