South By North Strategies, Ltd.

Dean Baker of the Center for Economic and Policy Research explains the potential benefits of work sharing as a response to weak labor market conditions.

Work sharing is not a new idea. The idea of shortening work time to create more work has a long history. In the context of an economy that is at full employment, this approach can be seen as misguided, since legislated reductions in work time can lead to increased inflationary pressure and economic distortions. However, in an economy that is operating well below its potential – and projected to remain so for much of the next decade – work sharing may be the most viable way of bringing the economy back closer to full employment.
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Germany is the model in this respect. It has aggressively promoted a policy of work sharing, along with other measures aimed at persuading employers to retain workers. As a result, its standardized unemployment rate now stands at 6.7 percent, 0.4 percentage points below the rate at the start of the downturn. This remarkable achievement was not due to superior economic growth. Through the fourth quarter of 2010, the growth rate of Germany’s economy since the start of the downturn had actually lagged somewhat behind the growth rate of the United States. The fact that Germany’s unemployment rate had fallen, while the unemployment rate in the United States had risen by 4.4 percentage points, was entirely due to different labor-market responses to the downturn.