Full Employment – The case for Paid Vacation

If we can’t take steps to increase the demand for labor, we can go the other way and try to reduce the supply. Specifically, we can try to increase the number of people employed by reducing the average number of hours worked.

That should not sound far out. This is exactly the route taken by Germany, a country often held up as one of the few economic success stories in the world today.

Contrary to what is often claimed, Germany has not had booming growth. In fact, its growth since the beginning of the recession has been somewhat slower than growth in the United States.

Nonetheless, its unemployment rate is 5.0 percent. And unlike the United States, its low unemployment rate is not due to people leaving the labor force. The percentage of the population employed in Germany rose by 4.4 percentage points from the pre-recession level. By contrast, it fell by 3.6 percentage points in the United States. If the United States had seen the same increase in the percentage of the population working as Germany, another 20 million people would have jobs right now.

The secret to Germany’s success is in large part that it has been better able to distribute the available work. According to the OECD, the average length of the work year in Germany is 1388 hours. That is 400 hours less than 1788 hours for an average worker in the United States.

Germany has a variety of policies to spread the work. The simplest one is its work sharing program. The government encourages employers to reduce work hours rather than lay off workers in response to a falloff in demand. The government makes up most of the lost pay for workers who have a reduction in hours.

This is a straight win-win situation for everyone involved. The government would have paid unemployment benefits to workers who lose their jobs. Instead it is making up a portion of the lost pay for workers putting in fewer hours.

Chosen excerpts by Job Market Monitor. Read the whole story at The Paid Vacation Route to Full Employment | Dean Baker.