How a Shorter Workweek Could Save Our Economy

It is important that some version of President Barack Obama's stimulus package gets approved by Congress as quickly as possible. The package will be an important first step toward stopping the downward slide of the economy.

However, the package is only a first step. As Obama's own economic team's analysis showed, the package would still leave us with 7% unemployment two years from now (roughly the current rate), even if things go relatively well. And it is easy to imagine scenarios that are worse than the baseline assumed in this analysis – for example, a collapse of the banking system due to a tidal wave of bad debt or a run on the dollar resulting from our chronic trade deficit. In short, we should be constructing plans to boost the economy that go beyond this stimulus package.

I have already written about one possibility: health insurance. The government can quickly provide a boost to demand by awarding generous tax breaks to employers for covering workers who do not already have insurance and for making current policies more generous. These tax breaks can be coupled with the opening of Medicare to anyone who wants to buy in, thereby getting a jump start on Obama's health insurance programme.

The other obvious way to provide a quick boost to the economy is by giving employers tax incentives for shortening their standard workweek or work year. This can take different forms. An employer who currently provides no paid vacation can offer all her workers three weeks a year of paid vacation, approximately a 6% reduction in work time.