FacebookTwitterRedditEmail

Shorter Weeks, Longer Vacations

The United States is suffering the enduring effects of a collapsed housing bubble, not a financial crisis. This is an important distinction, because it points to the necessity of relying on shorter workweeks and longer vacations to return to full employment.

The financial crisis is largely irrelevant to the economy’s current weakness. The problem is that the demand that was created by $8 trillion in housing bubble wealth cannot be easily replaced. The bubbles generated more than $600 billion in annual demand in construction that has now been lost. The imaginary equity created by bubble-inflated house prices led to a consumption boom that pushed the saving rate to zero. Now that this wealth has vanished, so has the consumption that it fueled.
This leaves a gap of more than $1.2 trillion in annual demand. In the short term, this can be filled only by government deficits. In the longer term, the demand gap will have to be filled by a reduction in the U.S. trade deficit, but this requires a large fall in the value of the dollar.

With neither the prospect of much larger deficits nor a sharp decline in the value of the dollar very likely in the near future, the only remaining option is to share the work. This could be accomplished by changing employers’ incentives so that it is more profitable to reduce work hours than to lay people off.

Every month, companies lay off or fire two million workers. If firms could be persuaded to keep just 10 percent of these workers employed working fewer hours, it would be equivalent to creating 200,000 jobs a month.

If unemployment insurance benefits were used to subsidize short workweeks, so that people were compensated for part of their lost time (e.g. a worker who puts in 20 percent fewer hours gets 10 percent less pay), then many firms might opt to go the route of shortening work hours. This policy has been so successful in Germany that its unemployment rate has actually fallen since the start of the downturn, even though its growth has been no better than growth in the U.S.

Policy can also promote longer vacations, family and parental leave, and paid sick days — all mechanisms for making the workplace more family friendly. There seems to be no way to avoid the fact that we are destined to have a prolonged period in which the economy is operating below its potential output. It makes much more sense to turn this into leisure that can be enjoyed by everyone, rather than unemployment that is suffered by an unlucky minority of the work force.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This article originally appeared on Room for Debate.

More articles by:

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

bernie-the-sandernistas-cover-344x550
January 22, 2020
Melvin Goodman
The Media and the Military Mindset
John Davis
The Real Megxit Deal
John O'Kane
The Obama Legacy: Reform Versus Revolution
Kenneth Surin
The “Evolving” Scotty Morrison From Marketing
Martin Billheimer
“The Cops & the Klan Go Hand in Hand!”
Thomas Knapp
Executive Power: Alan Dershowitz’s Imagination Versus the Constitution
Jacob G. Hornberger
Egypt and the Destruction of Civil Liberties in America
Justin Podur
The People of Colombia are Cracking the Walls of War and Authoritarianism
Kelsey Hawkins-Johnson
Our Final Decade to Get Climate Policy Right
Jonah Raskin
Terence Hallinan: Fighter for the People and for the Legalization of Marijuana 
Colin Todhunter
Challenging the Flawed Premise Behind Pushing GMOs into Indian Agriculture
January 21, 2020
Sheldon Richman
Warmonger Cotton Accuses Antiwar Think Tank of Anti-Semitism
John Feffer
Trump Makes Space Great Again
Patrick Cockburn
The US and Iran’s Perpetual Almost-War is Unsustainable – and Will End Badly
James C. Nelson
Another Date That Will Live in Infamy: 10 Years After Citizens United
Robert Fisk
Iran Will be Changed Forever by Admitting Its Great Mistake, Unlike the West Which Ignores Its Own Misdeeds
Dean Baker
Did Shareholders’ Benefit by Paying Boeing’s Fired CEO $62 Million?
Susan Roberts
The Demise of the Labour Party and the Future For UK Socialism
Binoy Kampmark
Janus-Faced on Climate Change: Microsoft’s Carbon Vision
David Levin
The Teamster Revolt Against the Hoffa Era
Victor Grossman
Defender and Spearheads
Russell Mokhiber
BS Public Editor and the Disease of Contempt
Tiffany Muller
Get the Money Out of Politics: 10 Years After Citizens United
Laura Flanders
Iowa is Not the Twitterverse
Graham Peebles
Education: Expanding Purpose
Elliot Sperber
Handball in Brooklyn 
January 20, 2020
Paul Street
Trump Showed Us Who He Was Before He Became President
Eric Mann
Martin Luther King and the Black Revolutionary Tradition
Ipek S. Burnett
MLK and the Ghost of an Untrue Dream
Mark Harris
Better Living Through Glyphosate? Spray Now, Ask Questions Later
Katie Fite
Owyhee Initiative Wilderness and Public Lands Deal Critique: Ten Years After
Thomas Knapp
A Loophole for the Lawless: “Qualified Immunity” Must Go
REZA FIYOUZAT
Best Enemies Forever: The Iran-U.S. Kabuki Show
Jeff Mackler
Worldwide Furor Sparked by U.S. Assassination of Iran’s General Suleimani
William deBuys
The Humanitarian and Environmental Disaster of Trump’s Border Wall
Binoy Kampmark
A Matter of Quality: Air Pollution, Tennis and Sporting Officialdom
James Haught
GOP Albatross
Jill Richardson
Why Do We Have School Lunch Debt at All?
Robert Koehler
Nuclear Hubris
Patrick T. Hiller
Instead of Real-Time Commentary, Eight Common-Sense Reason for Not Going to War with Iran
Charles Andrews
A Note on Carlos Ghosn and Global Capitalism
Jeffrey St. Clair
Some Trees: Los Angeles
Weekend Edition
January 17, 2020
Friday - Sunday
Jeffrey St. Clair
Roaming Charges: No Woman, No Cry
Kathleen Wallace
Hijacking the Struggles of Others, Elizabeth Warren Style
Robert Hunziker
The Rumbling Methane Enigma
FacebookTwitterRedditEmail