Wanted: A More Radical Plan to Reduce Unemployment

In the face of worsening economic news, it's time to start thinking about some more radical approaches to reducing unemployment. The German practice of "work-sharing" has been endorsed by both Kevin Hassett of the American Enterprise Institute and Dean Baker of the Center for Economic and Policy Research.

Here's a short library of research on the idea, which is provided for in the law of 21 states, but which has never gotten off the ground in this country—in large part because of the problem of sharing health-insurance coverage. (Another demerit of the American system of employer-based coverage.)

In a 2011 paper, Baker explains what work-sharing might deliver:

Germany ... has aggressively promoted a policy of work sharing, along with other measures aimed at persuading employers to retain workers. As a result, its standardized unemployment rate now [mid-2011] stands at 6.7 percent, 0.4 percentage points below the rate at the start of the downturn. This remarkable achievement was not due to superior economic growth. Through the fourth quarter of 2010, the growth rate of Germany’s economy since the start of the downturn had actually lagged somewhat behind the growth rate of the United States. The fact that Germany’s unemployment rate had fallen, while the unemployment rate in the United States had risen by 4.4 percentage points, was entirely due to different labor-market responses to the downturn.

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David Frum

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