The payroll tax law's best measure

Tucked in the small print of the payroll tax bill is a work-sharing plan that could save more than a million jobs this year

Dean Baker
guardian.co.uk, Monday 27 February 2012 10.35 EST

One of the little-noticed items attached to the extension of the payroll tax cut was a provision that would promote work-sharing as part of state unemployment insurance systems. The provision, which is based on a bill introduced in the Senate by Jack Reed and in the House by Rosa DeLuaro, would reimburse states for money spent on work-sharing programs that are part of their unemployment insurance system. It would also provide funds for the states that do not currently have work-sharing systems to establish them.

This provision is a rare victory of bipartisanship and commonsense. The basic logic of work-sharing is straightforward. Under the current system of unemployment insurance, workers who lose their jobs can get roughly half of their pay in benefits. However, if a worker has their hours cut back because of inadequate demand, they don't get in any way compensated for the lost pay. This effectively encourages employers to go the route of layoffs, rather than shortening work hours, since that is the only way that workers can benefit from unemployment insurance.