Republicans—should they take hold of the House—will face two simultaneous challenges. The first comes from the economy in the form of a stubborn unemployment number, rx which, should it remain at 8-9% while the party is in power, will be a significant weight around the neck of any Republican running for office in 2012. The second will come from their own supporters, primarily the Tea Party, who will undoubtedly demand that they live up to the small-government promises they have made for the past year on the campaign trail. In order to balance these constraints, the incoming Republicans will have to solve the first problem and placate the second.
Unemployment, meanwhile, is the result of two trends: an inability to create new jobs, and the destruction of already existing ones. The rhetoric in support of the Obama stimulus was tethered mainly to creating new jobs—a task it has mostly failed at in the eyes of the American public. Creating new jobs is expensive and especially challenging in a sluggish economy. Saving jobs, however, is a more surmountable obstacle. If Republicans wish to improve upon the Pledge to America—and if they’re serious about governing, they’ll have to—then a policy dedicated to saving jobs should be one to pursue.
High unemployment negatively affects both employers and employees, although in most cases the misfortune falls harder on the latter than the former. Nonetheless, employers face their own problems when letting employees go. Kevin Hassett, in a testimony to the House Financial Services Committee, explains why:
When a recession strikes, firms are faced with a dilemma: sales and profits are down, and many workers are idle. But finding skilled workers is costly and time-consuming, involving large fixed costs. If a firm fires workers, it may incur large hiring and training costs when the recession ends and sales turn back up. Thus, a firm would prefer, all else equal, to hoard labor during a recession.
If Republicans happen to be feeling particularly ambitious, they should examine Germany, where a jobs policy has allowed the country’s unemployment number to fall to 7.5%. Germany’s policy is called “Kurzarbeit,” which means “short work,” and, as Hassett explains, “if hours and wages are reduced by 10 percent or more, the government pays workers 60 percent of their lost salary. This encourages firms to use across-the-board reductions of hours instead of layoffs.”
A welfare program, Kurzarbiet is not. It is in fact just the opposite, and it is a program that conservatives should embrace. For the employee, it would allow continuous work, although at reduced hours, which means they would continue receiving most of his wages from their employer. This prevents them from collecting their well-being from the state in the form of far more costly unemployment benefits, which would happen should they lose their job entirely. Meanwhile, employers can retain their workforce yet exercise them at a limited capacity in accordance with their productive capacity. Small businesses would be able to operate at much higher levels than if they had to trim employees. As the government dispenses funds directly into the economy with limited inefficiencies along the way, this jobs program would have a multiplier effect much greater than that of the stimulus package. Finally, because this funding essentially only fills in the margins instead of subsidizing jobs entirely, it is far more cost-effective per job than the stimulus as well. The program would run only temporarily, terminating once the economy and unemployment have improved.
Unfortunately, the reduction in hours and overall pay—despite the government reimbursement—will still cause many households to feel the pain, as they will have to cut back on spending and long-term savings. It will, however, prevent many families from falling out of the middle-class—a story we’ve heard far too often during this recession when families see their household income slashed because of job loss. In addition, families entirely supported by only one working parent won’t face the grim prospects of homelessness and poverty as long as that parent or spouse retains employment, even if it is at a discount.
Of course, like any other policy, there are potential downsides. Paramount among them is the fact that future reduction in unemployment wouldn’t be as rapid as is typically seen in recoveries. Labor agency chief Frank-Juergen Weise believes that Germany “won’t see a mass of new hires as in previous upswings,” and that the country’s employment will grow by only “30,000 to 50,000 jobs.” Yet, the overall number isn’t necessarily what matters; if Americans feel less affected by the economic downturn, then the relative nominal rate of recovery won’t be as salient.
Kurzarbiet will have to undergo an Americanization of sorts. A more palatable name would certainly be first on the list. Legislators will presumably make other changes as well–perhaps more stringent requirements and incentives for both employers and employees, along with an adjustment in the required number of hours cut or the amount reimbursed. Whatever the outcome, there is little doubt that it will be influenced by the demands of constituents and American political culture.
This is the sort of policy that Republicans should be looking for if they wish to show that they are more competent at governing than Democrats. It is uncertain as to whether or not the House leadership will be able to bring the Tea Party Caucus along. But they may not have to; what Democrat could justifiably vote against such a program?