Thursday, November 20, 2014

Share the Work

BERKELEY – The United States today is facing a crisis of long-term unemployment unlike anything it has seen since the 1930’s. Some 40% of the unemployed have been out of work for six months or more, which, as US Federal Reserve Board Chairman Ben Bernanke noted in a recent speech, is far higher than in any other post-World War II recession.

This crisis of long-term unemployment is having a profoundly damaging impact on the lives of those bearing the brunt of it. We know this thanks to a series of careful studies of the problem conducted in the depths of the 1930’s Great Depression.

The most famous such study, of the long-term unemployed in New Haven, Connecticut, was conducted by E. Wight Bakke, a graduate student and subsequently a professor of economics at Yale University. Through participant interviews, personal observation, time diaries, and longitudinal studies, Bakke showed how extended spells of unemployment caused workers’ skills to deteriorate and made it difficult for them to acquire new ones. The long-term unemployed also experienced a variety of physical and psychological problems, among them demoralization, apathy, and a sense of social isolation.

For those unfortunate enough to experience it, long-term unemployment – now, as in the 1930’s – is a tragedy. And, for society as a whole, there is the danger that the productive capacity of a significant portion of the labor force will be impaired.

What is not well known, however, is that in the 1930’s, the United States, to a much greater extent than today, succeeded in mitigating these problems. Rather than resorting to extensive layoffs, firms had their employees work a partial week. The average workweek in manufacturing and mining fell from 45 hours in 1929 to 35 hours in 1932. We know this from a 1986 article by my Berkeley colleague James Powell and his co-author, none other than – wait for it – Ben Bernanke.

The 24% unemployment reached at the depths of the Great Depression was no picnic. But that rate would have been even higher had average weekly hours for workers in manufacturing remained at 45. Cutting hours by 20% allowed millions of additional workers to stay on the job. They continued to earn an income. They continued to acquire skills. They had hope and the possibility of advancement.

Why was there so much work-sharing in the 1930’s? One reason is that government pushed for it. In his memoirs, President Herbert Hoover estimated that as many as two million workers avoided unemployment as a result of his efforts to promote work-sharing.

Second, legislation encouraged it. The industrial codes of the New Deal set ceilings on the workweek for specified industries and workers. The Fair Labor Standards Act provided financial incentives by requiring overtime pay for employees working long hours.

Third, there was no unemployment insurance to discourage it. An individual today, faced with the option of working 20 hours a week or drawing unemployment benefits, might be tempted by the latter. But, back in the 1930’s, before unemployment insurance, 20 hours was better than nothing.

Of course, unemployment insurance replaces only a fraction of most workers’ previous wages, which suggests that its effect in this regard is not very strong. But, even if unemployment insurance does not discourage work-sharing, it could be restructured to encourage it. Partial benefits could be paid to workers on short hours, rather than limiting payments to those who are fully unemployed. The program would at least partly pay for itself, with additional payments to workers on short hours offset by lower unemployment (and thus lower payments to those who are completely without work).

In fact, the US already has something along these lines: a program known as Short-Time Compensation. Workers can collect unemployment benefits pro-rated according to their hours when their employer submits an approved work-sharing plan, while the federal government compensates the states for a portion of the set-up costs. At last count, 24 states have begun adapting their unemployment-insurance systems to take advantage of the measure.

Unfortunately, the financial incentives that the federal government provides are mainly limited to helping the states to advertise and automate their programs. And those programs, in turn, are too modest, especially for senior workers with a reasonable expectation of remaining in a full-time job, to make work-sharing an attractive option.

Other countries have gone further. In Germany, for example, the federal government’s Kurzarbeit program makes up a significant fraction of the difference when, owing to short hours, a worker’s earnings fall by more than 10%.

The US federal government could emulate this example by compensating the states more generously for their Short-Term Compensation programs. Its failure to do so not only inflicts avoidable pain and suffering on the unemployed, but also threatens to inflict long-term costs on American society.

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    1. CommentedAndrew Purdy

      There were also no such thing as health benefits in the 1930s. For low wage workers, benefits are a large fraction of fixed costs, and can even exceed the take home pay.

    2. Commentedphilip meguire

      Between 1929 and 1933, the number of nonfarm private sector full time equivalent jobs declined 29%. In 1933, per capita disposable income was $1/day. This at a time when there was no unemployment insurance or food stamps or Social Security, when nearly all private sector jobs did not offer pensions, and when welfare was at most $5/week or simply did not exist. Many rural Americans burned wood, grew vegetables, raised chickens, and waited for better times. Very scarce money was reserved for property taxes and a bit of gasoline.

      In such a world, a layoff of more than 4-6 months' duration could be a death sentence. And so many private employers cut pay and hours, but kept as many of their core experienced people as they could afford. This happened to my great uncle, whose pay rate was cut and whose hours were cut to mornings only. He got by because he had no children, and because his wife had come into a small inheritance. I deem what his employer did to be a disguised pension.

      I would use "labour sharing" to describe factories and the like being open, say, 8-10 hours a day, but workers working 4-5 hour shifts. It is my impression that many factories in the worst years of the Depression worked mornings only. Many shops at Bethlehem Steel worked only 18 hours/week. I do not know if that was 3 hours before lunch, 6 days a week. I do know that the Navy paid BS a subsidy in order to keep going.

      Focus on the employment-population ratio (EPR). Regrettably, the BLS does not report the measure I would prefer, namely that for persons between their 25th and 62nd birthdays, who are neither institutionalised nor deemed permanently disabled by Social Security. Also avoid seasonally adjusted data. Seasonal adjustment is a great creator of fictional jobs, and destroyer of real jobs lol...

      Before the crisis, the EPR was about 63.5%. It is now about 58.5%, about what it was in 1977. Hence the Great Recession has destroyed one out of every 13 jobs. But a significant part of the problem is that over the past 30 years, we have become accustomed to a level of labour force participation that before 1978 was only attained in wartime. What we have experienced of late is a sharp rise in GDP per full time equivalent employee, in other words, in labour productivity. This is not entirely a bad thing. The issue then becomes one of spreading more widely the benefits of that increased productivity. The way forward I propose is a "demogrant" of $350/month paid to every legal resident of the USA. This demogrant is part of a flat tax system I advocate and have described in detail elsewhere.

        Commentedphilip meguire

        And a few states should immediately trial fractional unemployment benefits for those on reduced hours. That said, I suspect that a lot of people working part time are doing so not because they are working reduced hours in what used to be a full time job, but because part time work is the best the could find after being laid off from a full time job. If we make all part time workers eligible for fractional unemployment benefits, the taxpayer will find itself paying billions to WalMart's work force!

    3. CommentedFrank O'Callaghan

      This goes to the core question of how we should organize our society. What should we produce and how should we distribute it?

      We have improved our productivity to unimaginable levels but our distribution methods are woefully inadequate. In a world of plenty we have conspired to create poverty, debt and fear.

      We need to share much more than the work.

        Commentedphilip meguire

        Tax all value added by employers, all wages and interest paid by government, and all cash social benefits, at a flat 35% rate. Credit FICA and Medicare tax payments against this flat tax liability. Pay all legal residents of the USA a tax-free $350/month "demogrant." I predict that this would move the USA about half way to budget balance AND, when combined with food/energy stamps and Medicaid, would largely extinguish desperate poverty. When the long term unemployed would go back to work, they would lose their food stamps and perhaps Medicaid eligibility, but not the demogrant.

    4. Commentedjames durante

      No one should ever work.

      Work is the source of nearly all the misery in the world. Almost any evil you’d care to name comes from working or from living in a world designed for work. In order to stop suffering, we have to stop working.

      My minimum definition of work is forced labor, that is, compulsory production. Both elements are essential. Work is production enforced by economic or political means, by the carrot or the stick. (The carrot is just the stick by other means.) But not all creation is work. Work is never done for its own sake, it’s done on account of some product or output that the worker (or, more often, somebody else) gets out of it. This is what work necessarily is. To define it is to despise it.

      The anthropologist Marshall Sahlins, surveying the data on contemporary hunter-gatherers, exploded the Hobbesian myth in an article entitled “The Original Affluent Society.” They work a lot less than we do, and their work is hard to distinguish from what we regard as play. Sahlins concluded that “hunters and gatherers work less than we do; and rather than a continuous travail, the food quest is intermittent, leisure abundant, and there is a greater amount of sleep in the daytime per capita per year than in any other condition of society.”

      What I really want to see is work turned into play. A first step is to discard the notions of a “job” and an “occupation.” Even activities that already have some ludic content lose most of it by being reduced to jobs which certain people, and only those people are forced to do to the exclusion of all else. Is it not odd that farm workers toil painfully in the fields while their air-conditioned masters go home every weekend and putter about in their gardens? Under a system of permanent revelry, we will witness the Golden Age of the dilettante which will put the Renaissance to shame. There won’t be any more jobs, just things to do and people to do them.

      Bob Black
      "The Abolition of Work"

        Commentedphilip meguire

        The turnover of most firms is procyclical. How should the resulting risk be borne? The notion that employees should bear no risk except a heightened probability of job termination is one that we should move on from. and is not one our preindustrial ancestors would have experienced. Corporate HR should very seriously entertain reduced rates and hours as well as layoffs.

        Traditional farming involved a burst of hard work to plow and plant, and another burst at harvest time. The rest of the year was a rather relaxed affair. If there were no cows to milk, it was not unknown for farmers to be in no hurry to get out of bed. A major reason for the enormous rise in GDP per capita since 1700 has been a dramatic rise in working hours and work effort. The main way we work less than people did before WWII is that we can afford to retire when we are still healthy.

    5. CommentedCharles St Pierre

      The bosses, ie the wealthy, pay themselves too much. If they paid themselves less, there would be more money to pay the people who actually do the work. More people would have jobs. More work would get done. See:

      But Zsolt Hermann is also right. The world needs to get on a sustainable course, and quickly. But there is actually a lot of work involved in doing this, since much of the capitalization involved in today's society is a poor investment in a sustainable future. The US, for instance, with its suburbs and mainly dependent on its vast network of roads, is poorly positioned for a future of expensive energy.

    6. CommentedZsolt Hermann

      Undoubtedly one of the main features of the ongoing global crisis is the growing unemployment.
      If we consider the reasons behind the crisis, the unsustainable constant quantitative growth economic model, and that about 90% of all the production happening today is completely unnecessary and even harmful for a normal human life in the 21st century, we will se unprecedented number of unemployed people into the billions world wide, regardless of the development level of the countries.
      According to certain statistics about 10-15% percent of the world population can provide the necessities giving all 7 billion people a normal, comfortable life with the necessities of food, housing, clothing, health and security, so when humanity returns to a necessity and resource based economy in order to come out of the crisis and survive we have to figure out what to do with the rest of the billions.
      We have to first understand there is no "happy ending" here, the way we live today is unnatural, and we are only part of a vast natural system we are going against with our excessive, exploitative ways, thus we have no choice but to adapt to the laws and conditions around us.
      Instead of the cosmetic solutions, and wasting all our resources on institutions that have no future, present day leaders should prepare for the transitional period creating supplies and provisions for each and every one of us to maintain the necessities, avoiding mass hunger, plagues and consequent riots, and other violent scenarios.
      In the meantime they also need to plan and initiate a global, integral education plan in order to explain people why we are where we are, what the new global, integral world means, why we cannot continue with our present socio-economic models and what options we have to build a new system for all of us.
      The information is already all around is, but nobody puts it together for general use.
      As we start building a new mutually responsible system based on our true necessities without excesses, we will understand that the present day unemployment we consider as a tragedy looking from the viewpoint of today's lifestyle is actually the road to freedom from the slavery of the consumer system where everybody is endlessly chasing goods they do not even need and never would have wanted if not for the brainwashing of the marketing system influencing us 24/7.
      Whether we want it or not it is time to disconnect from the "Matrix".

    7. CommentedProcyon Mukherjee

      I have seen the German or the Swiss system working very closely, where the 'short time' work is organized in a manner that the loss is shared between the worker, the State and the company or the employer; this credo of sharing the burden when the recession strikes is the fundamental driver of change and buoyancy that we find missing in America, where partisanship and blame-game make the partnerships a remote possibility. Partnership between the employer, employee and the government and a responsibility to partner together in times of crisis would have gone a long way to reduce the sordid impacts of long-term unemployment; the solution lies in this partnership.

      Procyon Mukherjee