Reducing Unemployment in the New Year

As the New Year begins, Congress and the administration will renew their focus on jobs. From Main Street to Wall Street there is agreement that America needs more of them. Near double digit unemployment is painful and discouraging to unemployed and employed Americans. There is bipartisan agreement that employment is a critically important priority. Yet there have been inadequate bipartisan solutions to directly address joblessness to date.

One direct solution to putting more Americans to work that should be considered is expanding workplace flexibility to reduce unemployment by reducing working hours. Reducing the workweek to 30 hours from 40 hours would increase the number of employed by 30 percent. That is 30 percent more jobs. Modification of the existing business tax credit for hiring new employees could include incentives for reduced hours. Tax credits could apply to companies that would hire the currently unemployed and those with employees at risk of being laid-off or who prefer a reduced workweek. A reduction in working hours can be prorated across the number of hours in a week or days worked in a year.

Tax credits to companies that participate would offset increased employer costs from a larger workforce. These credits could vary by target populations such as the recently unemployed, parents of young children, the chronically unemployed, and older workers.

Collateral benefits would accrue to individuals, companies, and society in the areas of improved health, less stress, increased time for children and family, more employee engagement and productivity at work, less crime, more sustainable environmental lifestyles, and reduced government social expenditures.

The economic insecurity of the middle class has been increasing in recent years and is expected to continue to spiral downward unless effective changes are made.

One consequence of the widening economic gaps between Americans is increased pressures on both those who have jobs and those who do not. Those who have jobs encounter an ever increasing demand to work more hours with the associated health risks of less sleep, more stress, more work-family conflict, and less time to exercise and engage in other healthy habits. Up to two-thirds of current health care costs can be directly associated with preventable ailments related to lifestyle habits -- sleep, exercise, and diet. The economic pressures for those without employment also bring associated physical and psycho-social stresses, not to mention the societal consequences of increased drug use, crime, and social estrangement.

Negative fiscal consequences to society of these collateral damages are manifested in high health care costs, expanding entitlements -- social security, Medicare, Medicaid, food stamps, unemployment benefits -- and ever increasing prison and enforcement expenses.

The proposed solution -- incentives for reduced working hours -- has a demonstrated successful track record both here in the U.S. and internationally. There are various forms of these solutions. In the U.S. we have seen the spontaneous response of private companies and state and local governments reducing the hours of employees in lieu of lay-offs. The advantages to individuals include the retention of income, jobs, and benefits. Advantages to companies include increased morale and job engagement as well as cost-savings associated with retention of employees and avoidance of future expenses for rehiring and retraining.

A specific form of incentives includes "work sharing" or "short-time compensation" where reductions in working hours and associated reduced wages are supplemented by prorated unemployment benefits. Seventeen states have such work-sharing programs in place and usage has increased substantially in recent years. Federal legislation has been proposed and has received some bipartisan support. Such legislative proposals would establish national standards and funding to supplement state unemployment expenditures. These work-sharing programs are all directed at short-term, temporary fluctuations in employment.

Countries across the world -- from Europe, Asia, to South America -- have been using work sharing to lower unemployment. Particularly noteworthy is the success with work sharing and other incentives for reducing work hours in Germany and the Netherlands. Germany's economic robustness has been credited in part to these practices that have been possible by mutual agreement from management and labor.

Incentives for reduced hours can take various forms. One effective option would be tax credits for businesses targeted to various populations. The simplest mechanism is to modify existing jobs legislation that already creates tax incentives for new hires. Dean Baker from the Center for Economic and Policy Research (CEPR) has been at the forefront of proposals for reduced hours. He has suggested several options including tax credits for companies with reduced hours calculated annually to address the need for sick, family, and vacation leave. John Conyers, congressman from Michigan, has proposed the Share Credit Act of 2009 to provide tax incentives to reduce working hours for the currently employed. Senator Reed from Rhode Island has introduced work-sharing legislation to support state unemployment benefits.

Incentives for reducing working hours would address unemployment and its collateral problems. These incentives could be an effective means of reducing unemployment. Some will see additional advantages for particular populations. For example, there is a trend for older workers to remain in the workforce, which can benefit individuals and society. However, full-time work has particular disadvantages for older workers and thus, we see more "phased retirement" -- older workers working reduced hours rather than leaving the work force or continuing full time. Later retirements may postpone social security expenditures and may result in more gradual and thus, more fiscally manageable, effects of aging baby boomers retiring. Reduced hours as compared to full-time work will likely have health benefits to seniors which could translate into lower Medicare expenditures.

Targeting the recently unemployed will appeal to the middle class and the country as whole, which in large part recognizes that current layoffs are caused by domestic and global factors beyond the control of the laid-off workers. Advocates of workplace flexibility may see the advantages for families and companies. Those concerned with the chronically unemployed, poverty rates, and the costs for entitlements may see this as a viable path to increase employment and economic self-sufficiency.

The result of all this would be more people working through tax credits to businesses. Some people will be concerned that reduced hours will follow the path of current part-time workers whereby women and low wage earners are disproportionally represented compared to men and higher salaried workers. Some view reduced working hours in the form of sick, personal, and vacation leave to be the responsibility of the employer and prefer mandates for leave and protections to full-time work. Others will be concerned that more workers means more fiscal burden for companies to provide benefits and may be reluctant to provide any government funding, even in the form of tax credits. These concerns are all important and safeguards and evaluation should be written into the legislation to ensure equity and prevent undesired consequences.

However, high unemployment has its own more pernicious consequences. A cost-benefit comparison of tax credits versus the drain on the economy, individuals, and the government from high unemployment could help overcome such opposition.

In the spirit of reaching feasible solutions that truly alleviate the unemployment crises for Americans, it is time to set-aside our past pre-conceptions and usual ways of proceeding and find compromises for a new vision. Encouraging reduced working hours can reduce unemployment and its ubiquitous collateral damage. Reduced working hours can provide jobs that meet the needs of 21st century Americans.

Susan N. Labin, Ph.D. is consultant in the Washington, D.C. area. She has worked at the Government Accountability Office (GAO), USDHHS, Corporation for National and Community Service, and university research institutes. David Gray is the Director of the Workforce and Family Program at the New America Foundation.