Work Sharing as a Potential Policy Tool for Creating More and Better Employment : A Review of the Evidence

This chapter has demonstrated the potential power of institutionalizing work sharing, whether temporary or permanent, to protect employment levels in recessions or perhaps feed employment growth during recoveries. From the empirical analyses and simulations generated herein, using a four equation VAR model, variance decompositions and impulse response functions, we may conclude, from the empirical analysis of the US case (a relatively difficult environment given that high fixed costs of employment in the US mitigate against employment creation), that during economic downturns and slumps, a “realistic case” scenario is that some additional employment can be gained, if a reduction in the length of the weekly work hours can be induced in conjunction with declines in output in the durables goods manufacturing sector, not the nondurables sector. Given the evidence that there is some potential substitutability of employment for hours, caution is warranted because the complementarity between hours and employment is strong. Thus, a crucial component for ensuring that crisis work sharing preserves jobs is some sort of provision of partial income replacement, such as STC, to prevent (or lessen) the macroeconomic repercussions of underemployment. Institutionalizing built-in stabilizers to absorb a downturn should be put formally in place before a “crisis” starts rather than being installed during or after it. The results suggest such measures would appear to be a powerful tool to lessen the severity of employment reductions during recessions and thus ought to appear on the menu of crisis-response measures, particularly in countries currently lacking formal programs that promote adjustment through hours reductions