Prevent Layoffs with WorkShare Laws

More states should enact WorkShare alternative laws. This way, instead of eliminating a position, employers can, for instance, cut one day from the schedule of each of five employees, and each one receives one-fifth of the unemployment compensation. Pro or con?

Pro: Pro: Humanitarian and Practical

As the unemployment rate skyrocketed in the U.S., from 4.6 percent in 2007 to 9.9 percent in April 2010, the unemployment rate in Germany fell, from 8.4 percent in 2007 to 7.3 percent in March 2010.

How? The simple answer is that the Germans have a system that allows workers to collect "part-time" unemployment insurance. Instead of laying off 10 percent of workers, say, with each collecting full unemployment insurance, employers can cut all workers’ hours by 10 percent, with each collecting 10 percent of the unemployment benefit.

In the eight rich economies with work-sharing plans, the average increase in the unemployment rate since 2007 is about one percentage point, compared with an average of about four percentage points in rich countries without such plans, according to data from the Center for Economic & Policy Research (CEPR). Because it builds on an existing program and simply reallocates money already in the system, work-sharing also has support across the ideological spectrum. My colleagues at the left-of-center CEPR and researchers at the right-leaning American Enterprise Institute, for example, all agree that work-sharing works.

The proposals under consideration at the state level simply reallocate current unemployment-insurance benefits from the existing all-or-nothing system to one that allows firms to cut hours instead of workers. Even opponents of unemployment insurance would surely agree that if we are going to spend the money—and there is no chance that states will eliminate unemployment insurance now or anytime soon—we should spend it in a way that gives the most bang for the buck.

Con: Businesses Aren’t Charities

The very notion of a "WorkShare alternative" perverts the sole purpose of corporations. Whether public or private, companies are founded not to create jobs but rather to generate profits for their shareholders.

Of course, profits are essential to job creation. Indeed, there are no jobs without investment, and successful profit generation fosters the very investment necessary for expansion and subsequent job creation.

To offer up but one example, when former IBM (IBM) CEO Louis Gerstner took over Big Blue in the early 1990s, he promptly laid off 60,000 employees in order to better serve his profit-interested shareholders. Investors rewarded the keen eye he kept on profits, and IBM’s share price skyrocketed, ultimately leading to the creation of 65,000 additional jobs during Gerstner’s tenure at the company.

Remember, also, that for state governments to essentially pay for, or offer tax deductions to, companies participating in WorkShare, they must raise the money through higher tax rates elsewhere. To put it very simply, the most profitable and efficient companies will essentially be forced to subsidize their less efficient competitors. In short, WorkShare would likely kill as many jobs as it would allegedly "save" for the successful, who would be forced to prop up the unsuccessful.

In the end, I can’t stress enough that companies exist to generate profits, not jobs. Of course, if we remove the barriers to profit generation, job creation will always result.

Opinions and conclusions expressed in the Bloomberg BusinessWeek Debate Room do not necessarily reflect the views of Bloomberg BusinessWeek, BusinessWeek.com, or Bloomberg LP.

Reader Comments

Sallyin Chicago

I for one am pro work share, flex time, and temp/part time work--anything that keeps a person on the job.

walter

Con, businesses will just use it to reduce the compensation of their employees. Professionals work every waking hour whether they are on the job or not. You can't measure it by 4 vs 5 days of work. If they can't afford to pay, then they shouldn't hire. Shifting jobs overseas is a different story. That is where the legislation should be focused.

varun sharma

I guess there should be a balancing act played by the corporations between workshare and profit driver approaches.

Put the non-performing employees under workshare/salary-cut mode, hence give employees a chance to improve, don't spread panic in shareholders by firing employees, and also cut the spending. And if they don't improve in the stipulated time, then fire them with valid reasoning and enhance the trust within shareholders that only the best workforce is running the corporation.

Join the Debate

 

Participate More!

Please send us your ideas for new Debate Room topics. If you're an academic, association officer, or other industry expert and would like to write a Debate Room essay, send us a query. Questions? See the

BW Mall - Sponsored Links

Buy a link now!