Cutting Unemployment Doesn’t Have to Cause Inflation
Years ago, the Federal Reserve tried to help the US economy balance unemployment and inflation. Then it abandoned that policy, focusing only on keeping inflation low, no matter what the effect on employment. Into this vacuum, other policies to cut unemployment have been proposed. Here is one.
Most opposition to the idea of attacking unemployment by shortening the workweek without loss of pay is based on the view that other policies are more efficient or otherwise more desirable ways of meeting the unemployment problem.
The case for shorter hours does not rest on the notion it is the best way. It is based rather on the view, supported by ample evidence in the past decade of mounting unemployment, that: (1) other economic measures to achieve full employment are not being applied and perhaps cannot be applied; and (2) even if other economic policies are successful in stimulating greater growth in the period ahead, the rate of advance in technology and other labor-displacing changes is gathering such momentum that, unless part of the gains in efficiency are distributed in reductions in hours, it is virtually inevitable that it will show up in persistent and increased unemployment.
Organized labor has not made shorter hours its first choice in the campaign against unemployment. Its first choice has been to apply its most vigorous efforts, all through the last decade, for a range of other public and private actions to stimulate a more rapid rate of economic growth. Shortening of hours has been discussed periodically but a major drive has been held off as a “last resort.”
Unemployment has been mounting steadily and is threatening to increase further because of automation and other technological innovations and because of the increased rate of labor force expansion. The economic programs relied on thus far to expand economic growth and job opportunities have been inadequate. Additional programs discussed as preferable to shorter hours — most notably tax reduction, reform of the tax structure, marked expansion in public investment and an eased monetary policy — are not being put into effect. To oppose hours reduction on the ground that other approaches are sounder and then to fail to apply them is not an acceptable course of action.
The relative merits of alternative economic approaches are not evaluated here. The points below may be useful, however, in assessing the wisdom of hours reduction as against other measures generally:
1. Shortening of hours does not need pinpoint timing for full effectiveness but its practicality and value diminish once a full-fledged recession is in process. The workweek can best be reduced with no loss in weekly pay while the economy is still comparatively prosperous, before unemployment pressures have mounted to become the dominant economic force. If the shorter hours tool is held in reserve too long and turned to only after the full shock of recession or immense load of unemployment arrives, its practicality and positive benefits will be severely blunted. Shorter hours would likely come then largely in an undesirable worksharing, cut-wage form forced by overwhelming unemployment and would not be adequate to the task of contributing substantial momentum to employment upturn.
2. Advocacy of shorter hours does not mean rejection of other measures to increase employment. The choice need not and should not be an either/or proposition. Reduction of hours should be one of many steps applied to control unemployment, with the size of the reduction determined by the effectiveness of the overall program. If other measures prove effective in providing needed jobs, hours reduction can of course proceed more gradually.
3. Shorter hours are increasingly recognized by most workers and the public generally as directly related to the unemployment problem. This is not true to the same extent for other measures, such as government fiscal or monetary policies. Because so many workers would be directly or consciously involved in a general shortening of hours, there likely would be a wide sense of participation and appreciation of the anti-unemployment campaign, with accompanying psychological benefits for the economy.
4. Many of the collective agreement and government measures used to ease unemployment effects are geared to helping the unemployed worker hunt for a new job. These include private public retraining programs, relocation aid, counseling, severance pay and approaches. A major objective of shorter hours, on the other hand, is to reduce the need for layoffs and thereby encourage retention of workers in the type of work and industry to which they are already attached and in which they have already acquired training.
5. There is rather wide recognition that rapid technological strides will enable or force radically shorter hours at some point in the future, perhaps not at all distant. Reduction in typical hours of work in the present period are necessary to aid in the economic and social transition to increased reliance on technology in place of manpower.