Could Job Sharing Help Fight Unemployment?

Paul Krugman today solidifies his membership in the Job Squad, that growing contingent of bloggers and policy mavens calling for a new stimulus directed at employment. I've shared many of the Job Squad's ideas -- direct state aid, a tax credit for companies that hire, a payroll tax holiday, public work projects -- but here's one I haven't given much attention to: Job sharing. What is that and how would it work?

Dean Baker explains in this short article (PDF, sorry):

The basic point is simple: job sharing would use tax dollars to pay firms to shorten the typical workweek or work year, while keeping pay constant. If workers' purchasing power is held constant even as they work fewer hours, then labor demand will be held constant. This should cause employers to want to hire additional workers to make up for the fewer hours worked by their incumbent work force.

So this is sort of the mirror image of offering tax credits to companies when they hire. Job sharing goads employers to hire by offering them a pile of cash if they shorten the work week. Hiring tax credits reward employers by giving them a pile of cash if they expand their payroll.

But each of these strategies have downsides. A shorter subsidized work-week guarantees more money in employers' hands, but it doesn't guarantee more jobs (employers could pocket the subsidy). Also, the tax credit is easily gamed. Employers can bring contract workers onto payrolls, which gets them a tax credit but doesn't increase employment. Or they can flub the rules more deviously by laying off employees as the law is passed with the understanding that they'll be re-hired, with a handsome tax credit, weeks later.

The downsides don't blow up the case for job stimuli. But they deserve rigorous scrutiny from White House economists as the administration decides how to address double-digit unemployment that could be the norm for 2010.