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European companies reducing hours of work to cope with depression

Tip of the Hat to Economist’s View:

We are delighted to read this report from the New York Times that reduction of hours of work figures prominently in the solutions implemented in Europe. It seems to fly in the face of two objections often made to the idea of reducing hours of work in the US:

1. That such a reduction would be inflationary, and,

2. That such a reduction is uneconomical, since there is no limit to demand for goods and services (also known as the lump of labor theory).

Obviously, European companies are not finding such reductions inflationary, but actually cost-saving. And, it is clear they understand based on real time data that the demand for labor can and will at least fluctuate over time. Which presents the opportunity for an approach to dealing with downturns that does not add to fiscal deficits nor rely on inflationary loose monetary policies. It would be nice to see it catch on with American economists as well.

From the NYT:

“Collectively, workers and employers are finding some other solutions” to job cuts, said Andrew Watts, a senior researcher at the European Trade Union Institute, a body based in Brussels financed by unions to research labor issues.

Many countries have short-time compensation programs, tailored for the manufacturing sector, under which employers can apply for temporary assistance to lift the wages of workers working reduced hours.

France has a publicly financed partial unemployment plan, allowing companies experiencing difficulties to temporarily lay off workers and draw on state money to pay them during those periods.

Several companies have applied for the funds, many in the auto and auto supply sectors.

The automaker PSA Peugeot Citroën is in the process of a voluntary layoff plan for 3,500 of its 108,000 workers in addition to cutting workers’ hours. Laurent Cicolella, a spokesman, could not provide an exact figure for those affected by partial unemployment as it “changes week to week,” but he added that the number had been falling since last fall.

In the Netherlands, 223 companies had used a similar program by mid-January.

Germany also has several measures to reduce working time, many of which are specifically framed as employment-saving measures.

The federal “Kurzarbeit” system, which translates as “short work,” provides a state-supported backup for companies resorting to short-time working outside the provisions of collective agreements.

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