An interesting new phenomenon is going on in the labor force. In the late Industrial Era, economic downturns were met with the labor market mechanism of layoffs. Workers were not fired (permanently separated) but laid off with the expectation of being called back when the upturn started. This was cyclical unemployment. A number of social institutions grew up to accommodate this process, including unemployment insurance (UI) and union-based unemployment funds. While these policies were developed to cope with firings not temporary layoffs, they operated as a de-facto industrial policy for the large mass production companies that guaranteed the workforce would still be available for recall.
That has changed. The cyclical recessions of the 1950’s, 60’s and 70’s have given way to structural recessions. The 1981-2 recession was the last time that there were wholesale layoffs with the expectation of calling the workers back. In the 1990 recession, outright firings replaced layoffs as companies used the recession to restructure. Rather than sticking around on unemployment, workers take new jobs (or at least look for them) as they believe they will not be re-hired. In essence, the forces of creative destruction were unleashed to move resources from one industry to another, rather than simply move those labor resources into a reserve pool for existing industry.
This shift is one of the reasons for increased economic insecurity and anxiety — as workers found their hard earned skills and tacit knowledge no longer valuable as they switch from industry to industry.
Now a new technique may be emerging in the current “situation.” The Wall Street Journal reports that more companies are cutting hours rather than letting workers go:
In another sign of a weakening job market, employers are cutting hours for more workers to below the 35-hour-per-week threshold for full-time work because of slowing demand, or “slack work,” according to government data.
. . .
Reducing hours is enabling many companies hurt by slowdowns in housing and autos, in particular, to stave off layoffs and retain skilled workers, but the cuts are squeezing earnings for many workers and putting some workers’ benefits at risk.
This new mechanism highlights one positive aspect. Employers recognized the value of workers and are trying to find ways to keep them. On the downside, it may retain skilled workers in the short run but could dramatically increase the economic pressure on these workers — pressure some believe is already large and growing (due to the housing problem).
It also highlights the crying need for new government policies. As I mentioned earlier, UI and union-funds helped ease the difficulties of layoffs associated with cyclical unemployment. For structural unemployment, there are programs on the books — retaining etc. But those programs are structurally inadequate and flawed as well as grossly under funded.
For this new involuntary part time economy, we don’t have a clue. What is the appropriate economic policy to help the “slack” worker? Do we help the worker directly or would an expansion of the Earn Income Tax Credit help cope with the loss of income effect of slack work? Do we treat this as a labor market issue? Or do we treat it as an issue of the working poor? Or more accurately, as an issue of the loss of income of the working middle class on in danger of becoming poor? And how do we figure in the issue of the free-lance economy and the voluntary part-time workforce?
Welcome to a new I-Cubed Economy.