Saturday, December 5, 2009

Kurzarbeit or Trojan Horse?

Jacob Funk Kirkegaard for the Peterson Institute for International Economics raises an interesting objection to emulating European Kurzarbeit programs. Considering the Peter G. Peterson connection, Kirkegaard's recommended short term remedy might set off a few alarm bells among the "don't touch Social Security, it's not broken" crowd (but see also Bartik and Bishop at the EPI):
What conclusions should the Obama administration draw from Europe’s success with work-sharing measures?

With the US unemployment rate at 10.2 percent, it may be too late to expand "work sharing programs" from the current 17 state-level programs. Government-supported "work sharing programs" similar to those in core Europe work to preserve existing employment rather than to create new jobs. Hence such programs disproportionately benefit skilled workers, whom companies will prefer to "hoard," as they are more likely to find employment elsewhere if laid off. This type of insider-outsider dynamic has been very prevalent in Europe during the crisis, where increases in unemployment despite work sharing programs have been heavily concentrated among people on temporary work contracts. Additional protection for "insiders" is clearly not what the US labor market needs at the moment.

Instead, in the short term, Congress should implement a temporary holiday for Social Security and Medicare payroll taxes for new hires. This could provide an urgently needed, powerful broad-based and immediately implementable job creation stimulus for the US labor market.

4 comments:

Min said...

B&B: "Hence such programs disproportionately benefit skilled workers, whom companies will prefer to "hoard," as they are more likely to find employment elsewhere if laid off."

Are they more likely to find employment elsewhere if laid off? If a company has a hard time and lays off workers, skilled workers have more to offer other companies than unskilled workers, and it is likely that they will have an easier time finding a job. But when times are hard, is that the case? Then if one company lays off a skilled worker, other companies will be laying off similarly skilled workers, and then who will be hiring them?

"This type of insider-outsider dynamic has been very prevalent in Europe during the crisis, where increases in unemployment despite work sharing programs have been heavily concentrated among people on temporary work contracts. Additional protection for "insiders" is clearly not what the US labor market needs at the moment."

The conclusion is a non-sequitur. What makes skilled workers insiders? Now, if the argument was that businesses should be laying off management at the same rate as others, that might be different. But what B&B are doing is focusing on differences between workers as a way to weaken support for workers in general. What we need is less unemployment. If that means that more of the unemployed are unskilled, then training programs and job programs aimed at unskilled labor are more clearly appropriate remedies for them. As in so much rhetoric, there is an unwarranted either/or assumption. In times of crisis we need both/and solutions.

Walker said...

Min,

My formatting mistake! The citation was from Kierkegaard, not B&B. My reference to them should have been in parentheses. I've edited the post.

Bruce Webb said...

I tend to see every proposal for a payroll holiday for Social Security as being either pernicious or ignorant. If the program is in dire crisis as the PGP people claim why on earth would you propose blowing a hole in its finances, even a "temporary" one? And progressives who look at Social Security and only see a 'regressive' tax and so use cuts in it to compensate for actually regressive consumption taxes make me want to reach for my pistol.

I know how to protect Social Security from its enemies, but I despair sometimes in trying to defend itself from its friends. In the longest of long runs it would be nice to try to convert Social Security into a true national pension not tied so strictly to actual individual wage history, but given all the totally unmet needs today that should be the last item on the social democratic agenda and not the first one. Social Security was deliberately set up as a compromise between a true insurance plan and a welfare system, and things like taxing from the first dollar and the payroll cap are are key components of a delicate political balancing act. One which the PGP people would LOVE to get collaboration from progressives to get it wobbling.

Beware of Greeks bearing gifts. Even Greeks whose father changed their family name to Peterson.

rosserjb@jmu.edu said...

As usual, I agree with Bruce Webb on this.