Work Sharing: An Idea Whose Time Has Come?

CEPR (pdf):

There are two basic ways to increase employment: increasing output and thereby increasing the demand for labor, or dividing up the existing work among more workers. In responding to the current downturn, policymakers in the United States have focused almost exclusively on the former route. This may in principle be the more desirable route, since there is enormous waste associated with an economy operating below its potential, however all the obvious routes for providing further stimulus now appear to be blocked by political considerations. In this context, it is worth considering the alternative route of sharing the available work among more workers.

Work sharing has been used in Europe to bring more people into the workforce during times of economic strain.

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.