PSST: Work-Sharing May Not Work
By Arnold Kling
Today, American companies facing weak demand typically lay off workers, even though that decision can be costly down the road (rehiring and training are expensive). A work-sharing program would allow companies to instead make temporary, across-the-board reductions in hours worked by (and wages paid to) the same number of employees
Let us look at this from a PSST perspective. When we think of economic activity as patterns of sustainable specialization and trade, then economic activity consists of outsourcing. If you limit the hours that I can work, you limit my ability to outsource. Therefore, you reduce economic activity. PSST would say that laws mandating reduced hours or work-sharing will lead to less employment, not more. One of the advantages of the PSST perspective is that it leads you to think about what economic activity means. It gives you an alternative to the “lump of work” thesis that seems to be the basis for the work-sharing proposal.