[Pen-l] Baker's "third round": shorter working time

[Sandwichman <lumpoflabor@xxxxxxxxx>]

Dean Baker has written a report arguing calling for a "third round of 
stimulus" because the recession is proving to be worse than economists' 
expected. A major component of that third stimulus would be Dean's 
proposal for a tax credit for reduced working time. See paragraph four 
in the press release below and the bottom of page 13 to page 14 in the 
report, which follows.


     More Stimulus Needed to Slow Spiraling Unemployment and Deepening
     Recession

*For Immediate Release*: March 17, 2009
*Contact*: Alan Barber (202) 293-5380 x115

http://www.cepr.net/index.php/press-releases/press-releases/more-stimulus-needed-to-slow-spiraling-unemployment-and-deepening-recession/

*WASHINGTON D.C.*- With the nation in the midst of what may be the 
deepest economic downturn since the Great Depression, a new report from 
the Center for Economic and Policy Research (CEPR) makes the case for a 
third round of economic stimulus to help put the country on the path to 
economic recovery.

“The Housing Crash Recession and the Case for a Third Stimulus 
<http://www.cepr.net/index.php/publications/reports/the-housing-crash-recession-and-the-case-for-a-third-stimulus/>,” 
points out that many of the economic projections that policymakers have 
used to form their responses to the recession are already proving to be 
overly-optimistic. To counter spiraling unemployment and the turmoil in 
the housing and stock markets, the paper suggests an additional stimulus 
package, advocates housing policy based on targeted stabilization of 
house prices in non-bubble and deflated markets, and the necessary 
correction of the dollar.

“The majority of economists and policymakers missed or downplayed the 
housing-bubble,” said report author and CEPR Co-Director Dean Baker 
<http://www.cepr.net/index.php/dean-baker/>. “As a result, the nation 
was ill-prepared to deal with the severity of the recession and previous 
stimulus packages were simply not enough to put out the fires and slow 
the downturn.”

To get money into the economy effectively and quickly, the report 
proposes a stimulus package consisting, in part, of two tax credits: an 
employer tax credit that would extend health care coverage and another 
per worker credit for employers increasing the amount of paid time off.

To address the collapsing housing market, the paper 
<http://www.cepr.net/index.php/publications/reports/the-housing-crash-recession-and-the-case-for-a-third-stimulus/> 
makes the point that housing price stabilization is a good idea, but 
only in areas where there was no bubble or in which the bubble has 
already deflated. Adopting a one-size-fits all solution runs the risk of 
merely providing a temporary break before prices begin to plummet again 
in bubble-inflated markets and increases the risk of over-shooting trend 
levels in non-bubble markets.

The report 
<http://www.cepr.net/index.php/publications/reports/the-housing-crash-recession-and-the-case-for-a-third-stimulus/> 
also argues that for the nation to fully recover from this recession the 
dollar should be allowed to fall. To address the U.S. trade imbalance. 
And even though the Chinese Prime Minister has recently complained about 
holding U.S. Treasury bonds, there is no cause for alarm to keep U.S. 
goods from becoming hyper-competitive in world markets, other nations 
will have no alternative but to prevent the dollar from falling too far, 
if its value begins to fall substantially.

----------------------------

From The Housing Crash Recession and the Case for a Third Stimulus
http://www.cepr.net/documents/publications/housing-crash-recession-2009-03.pdf

The other obvious mechanism for quickly boosting demand is employer tax 
credits for giving workers paid time off. The paid time off can take a 
variety of forms, such as paid family leave, paid sick days, paid 
vacation days or a shorter workweek. The idea is that the government 
would give an employer a tax credit of up to $2,500 per worker per year 
to cover the cost of a reduction in work hours of up to 10 percent of 
their work time.

This tax credit, like the health care tax credit, could be implemented 
with very little lead time and little bureaucracy. To qualify, an 
employer would need to post on a public website the reduction in paid 
work time that they have put in place. Since workers could see the 
work-time reduction claimed by their employer, they would be able to 
verify that the policy has in fact been put into place. The arithmetic 
on this is straightforward. Suppose that employers of 60 million workers 
reduce their work time through family leave, sick days, or shorter hours 
by an average of 5 percent, at an average cost of $2,000 per worker. 
Since demand will not have changed (workers are getting paid just as 
much as they had previously), employers will in principle want to hire 
an additional 3 million workers to make up for the lost labor hours. 
This would imply 3 million new jobs, or jobs saved (in many cases, it 
may prevent layoffs that would have taken place otherwise), for an 
expenditure of $120 billion.

The great virtue of this sort of tax credit is that it is both boosting 
GDP and also increasing the number of jobs for every level of GDP. If 
everyone in the economy worked 5 percent fewer hours, and we had the 
same level of output, then we would have 5 percent more people working. 
For this reason, it is the most efficient mechanism for bringing the 
economy back to full employment.


-- 
Sandwichman
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