If you were an employer, how does a short-work program help you out in times of trouble, and why might you be tempted to be in trouble all the time?

CASE CONTEXT:

Although the global economic recession of 2007-2008 hit all countries hard, some nations were able to weather this storm better than others, at least with respect to layoffs and unemployment. For example, in Holland, even at the peak of the recession, the Dutch unemployment rate was at just 3.7%, well below the double-digit numbers experienced in the United States. Much of the credit for this can be traced to so called "short-work" programs established in the Netherlands, where government intervention and subsidies help soften the blows associated with sharp swings in labor demand and supply.

Short-work programs were historically introduced in Holland during the Nazi occupation in the 1940s but they were often reintroduced after the Second World War during times of dire need. In the most recent recession, to qualify for a subsidy, an employer had to show that their organization experienced a 30%% drop in revenue over a two-month period, thus qualifying as a "sharp swing. " Rather than resorting to layoffs, the company simply reduces the hours each person works, and then the government pays workers for a large percentage of the hours that were lost. For example, at DAF Trucks, even though demand for trucks dropped by over 50% in 2009, the company maintained over 80% of its full-time staff.

Although pay is off slightly relative to normal, most employees on short work take home about 85% of what they would normally make, and as one DAF worker noted, 'it sure beats being unemployed." The practice also helps the employer, who gets to retain highly trained workers that might otherwise be lost forever. Especially during short-term shocks, valued employees might be unavailable for rehire once the demand for labor rebounds, and hence a short-term shock results in a long-term, irrevocable loss. Indeed, not only do the companies get to retain valued employees, in many cases these same workers wind up using the time off to upgrade their skills. Finally, although there are some upfront costs for the government when they provide the subsidies (roughly 2 million euros for the Dutch), this is somewhat offset by the reduction in costs associated with unemployment compensation that are also borne by the government.

Short-work programs do have their critics, however. Some of the criticism is strictly financial, in the sense that it results in a deficit spending model for the government. For example, in Holland, the country went from having a government surplus of 1% GDP to a deficit of 5% in a single year. Some of the criticism is more ideological, in the sense that the programs seem to have a communist feel to them. For example, Rick Van der Ploeg, an economics professor at Oxford University, claims that "this is sharing poverty plain and simple. " Finally, some of the criticism hinges on competitive dynamics, in the sense that if the down- turn is not just a short-term cyclical drop, but rather a long term structural change in the economy, this practice "locks" people into obsolete jobs. Clearly, the debate about the costs and benefits of such programs will go on in other countries, but in the meantime, the Dutch have a long-term commitment to short-work programs.