NCPA - National Center for Policy Analysis


April 19, 2010

Can inefficiency create work?  Liberal economist Dean Baker and conservative economist Kevin Hassett think so.  They have teamed up to promote the concept of "work sharing" as a solution to the high U.S. unemployment rate.  Unfortunately, the scheme will make finding employment more -- not less -- difficult, says economist John Tamny. 

What is work sharing? 

  • Under a work sharing program, firms are encouraged by government policy to spread a small amount of the pain across many workers.
  • In a typical arrangement, a worker might see his weekly hours go down by 20 percent, and his salary go down by about 4 percent. 

Baker/Hassett confuses what drives job creation, says Tamny: 

  • At its core, job creation is a function of investment -- where there's investment, jobs are plentiful.
  • Baker/Hassett will scare away investment, and tax successful companies and individuals to fund their utopian vision.  

To support work sharing, Baker/Hassett proposes that the federal government provide a tax credit to the firms that keep their least valuable workers employed.  While perhaps compassionate at first glance, how does this help other companies that want to hire but don't have the funds to pay prevailing wages?  The obvious answer is that the tax subsidy requested by Baker/Hassett will be the burden of expansion minded firms whose growth visions will be thwarted by government policy meant to keep the cost of hiring workers abnormally high, says Tamny. 

Worse, for a government that by definition has no resources, for it to stimulate a work sharing program through tax subsidies, it must as a rule depress other, more vibrant parts of the economy.  For the federal government to essentially pay certain firms to keep workers on their payrolls, the money must come from somewhere, and those depressed in this scenario will be the most productive American firms not in need of a handout, says Tamny. 

Source: John Tamny, "Jobs Aren't Finite, But Investment Is," Forbes, April 12, 2010. 

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