I’m a Dean Baker fan, but I’m not comfortable with the praise
he heaps on Germany’s work sharing scheme in a recent article entitled “The
Myth of the German Boom…”. In fact he attributes the difference in unemployment
rates as between Germany and France (about 5% vis a vis 10%) largely to work
sharing.
The flaw in work sharing.
Work sharing is just one of numerous alleged cures for
unemployment which all aim to reduce labour supply. Those quack cures include
early retirement, delayed entry to the labour force for youths, longer holidays
– the list goes on and on.
The big idea is thus. 1. Have the EMPLOYED do less work.
2. That leaves work undone which allegedly can be done by the unemployed. And
the flaw in those alleged cures is sometimes referred as the “lump of labour
fallacy” because it assumes there is some sort of fixed amount of work to be
done.
To expand on that, the flaw in the idea is thus. Raising
employment is easy: just bump up demand. But the constraint on that cure is
inflation: that is, the more unemployment falls, the more difficult it is for
employers to find the types of labour they want amongst the ranks of the
unemployed. So they resort to out-bidding each other for the services of those
who are already employed. And that equals inflation.
Now if those already in work do fewer hours (either
because they are FORCED to do so or because they do so voluntarily) and
aggregate demand remains constant, then there is indeed some “undone work”
which it might seem can be done by the unemployed. But – and this is the
crucial flaw in the above quack remedy – if inflation becomes excessive when
say 5% of the workforce is unemployed (because employers can’t find the labour they
want amongst the ranks of the unemployed) than that self same problem will
arise AFTER work sharing has been implemented, and when 5% of the worforce is
unemployed. I.e. there is no reason to suppose that work sharing reduces NAIRU.
Or put another way, if aggregate labour supply can
be reduced relative to aggregate demand for labour, why not do that by raising
aggregate demand? That way people (or at least more of them than pertains in a
work sharing scenario) can do the number of hours work they want.
Number of employees involved.
As to the actual NUMBERS in Germany who are engaged in work
sharing, estimates seem to be all over the place. According to this CNN
article, one in four Germany employees are on some sort of work sharing
scheme, plus such schemes have been in place for decades. That’s complete
madness because over recent decades there have been periods when unemployment
was as low as it could possibly go, thus work sharing would have been a waste
of time.
In contrast, this ILO publication
claims the total number in Germany engaged in some sort of work sharing scheme
was 1.5 million.
Germany versus the periphery.
In contrast to Germany, would work sharing be beneficial
in the periphery? There is a plausible reason for thinking so, namely that
periphery countries cannot cut unemployment to NAIRU since they’re deliberately
restraining demand so as to get their wages, cost and prices down (or rather
they’re being forced to do that by the Euro authorities). But there’s a problem
there (which readers will immediately recognise if they’ve grasped the central flaw
in the above quack remedies for unemployment). The problem is thus.
As just mentioned, the whole point of austerity in the
periphery is to get costs and prices down. Now as explained above, if work
sharing is implemented and aggregate demand remains constant, then the
availability of labour to employers declines which is inflationary: just what’s
not needed when trying to get costs and prices down. So unfortunately work
sharing is a questionable policy even in periphery countries suffering from
austerity.
Ralph, as you have noted, work sharing does nothing to reduce unemployment. It just shares the pain across a larger pool of workers.
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