Would Shortening the Workweek Stimulate the Economy?

BY busadmin  August 28, 2009 at 12:20 PM EDT

cubicles; Ste3ve via Flickr

Question: Why doesn’t the federal government stimulate the economy by reducing the length of the workweek (the number of hours after which employees receive time-and-a-half pay)? Employers would respond by spreading the work load, which means more hiring and fewer layoffs.

Wouldn’t that be more efficient overall than high unemployment? By tying the length of the work week to the unemployment rate using an automatic formula, a feedback loop could be set up to keep unemployment at a reasonable level.

Paul Solman: Because it would seem too radical? Too kooky? Because it wouldn’t distinguish between more and less able workers? And yet, maybe not such a hare-brained scheme. Another friend of this page, Dean Baker, wrote the following in the New York Daily News in January:

“One innovative policy that would provide a quick boost to the economy and jobs – and lasting gains in reduced unemployment – is a tax incentive for shorter workweeks or work years.

No doubt, such a suggestion will make conservatives howl about liberals attempting to turn the United States into France, where in 2000 the government mandated a 35-hour workweek.

But I’m not suggesting the government force a shorter workweek; I’m suggesting it create incentives for businesses to make the choice themselves.

And in any event, there are worse examples to follow than France’s on this score. The reduction in the workweek there created new jobs and improved productivity.

Incentivizing a shorter workweek in the U.S. could take different forms. To qualify, an employer who currently provides no paid vacation might offer all workers three weeks a year of paid vacation, approximately a 6% reduction in work time. Alternatively, employers could cut the standard workweek, say from 40 hours to 36 hours, a 10% reduction in work hours. Or they could offer paid sick leave or paid parental leave.

How would this help the economy? The tax break would allow the employer to compensate workers for fewer hours up to some limit, say a maximum of $2,500 per worker. That would cut work hours but maintain staffing levels.

As a result, workers would be getting just as much money as before the reduction in hours – but putting in 10% fewer hours. If workers have the same amount of money, then demand in the economy will be the same. At the same time, firms would then need to hire more workers to meet this demand, since they would be getting 10% fewer hours from each worker.

Such a tax break would stay in effect for just two years. However, if workers and employers liked the new work schedules, there would be a lasting benefit from this job creation measure.”