Longer Weekends and Higher Wages? 5 Surprising Ways That Would Help Improve the Economy

Americans have been sold a big lie on the economy. 

We've been told, over and over, by politicians in both parties, that in order to have an economic recovery, we're all going to have to sacrifice. We're going to have to undergo brutal austerity measures that make our lives demonstrably worse for a while in order to get back to prosperity. We just have to accept wage and benefit cuts, high unemployment, and cutbacks to government services, because that's the only way we will recover from this crisis.

That's just not true.

It's an ideological position contradicting not just leftist economists, but even Republicans. It's a position that conveniently fits right in with the agenda of Big Business: slash public spending, force wages down, cut benefits, keep workers poor and desperate for any job they can get, and privatize government services and infrastructure for profit.

Worse than that, it won't work.

In fact, many economists have pointed out policies that would not only strengthen our economy in the long term, but in the short term make our lives actually more pleasant and livable.

Since the pursuit of happiness is actually enshrined in that Constitution conservatives love to tout, we've collected five suggestions for improving the economy that would also make our lives better right now.

1. Longer weekends, more vacations.

Annie Leonard pointed out at the New York Times that Americans work longer hours than people in any other industrialized nation. We work nearly nine weeks more than Western Europeans, and we get far fewer vacations.

Yet right now there aren't enough jobs to go around. So instead of continuing to squeeze the workers who are still employed for more hours, Dean Baker suggested that we spread those hours among more workers.

His idea, to subsidize shorter work-weeks with unemployment insurance benefits, would create an incentive for businesses not to lay off workers, but to cut their hours a little instead. His example, that a worker might put in 20 percent fewer hours but take only a 10 percent pay cut, would of course take some money from a worker's check, but at least compensate the worker with more free time.

This approach has actually been tried in Germany with great results. Labor economist Mark Price told me, “One of the most jarring statistics to come out of the Great Recession is that unemployment today is lower in Germany than when the recession began. The Germans suffered through a recession like everyone else did, but they absorbed the recession through reductions in working hours instead of through layoffs. Work-sharing arrangements allowed employers to cut hours in response to a decline in demand for their products and allowed workers who had their hours cut to supplement their pay with unemployment insurance benefits.”

Keeping workers with some income keeps them spending, and keeping them in the workplace means that as demand picks back up, their hours can be increased again easily.

Jeremy Grantham, the leader of Grantham Mayo Van Otterloo (GMO), one of the world's largest asset management firms, pointed out in his letter to investors [PDF] that the U.S. was great at “job destruction,” noting, “Where Dutch and German companies, among others, tried to protect their workers’ social capital by limiting firing, we protected short-term profits.”

(A recent article in Canadian magazine MacLeans also pointed out that Dutch workers, women in particular, often only work part-time to spend more time with their families—and that the Netherlands consistently ranks as one of the happiest nations on earth.)

Of course, part of the problem with the economy right now is that the workers who do have jobs aren't making enough money to keep spending, so any policy that saw those workers taking wage cuts could be problematic for recovery as well as for the people themselves. Therefore this idea works best for workers who already make a solidly middle-class salary; people barely making ends meet as it is would be little helped by additional cuts to their salaries. The policy worked in Germany and the Netherlands because salaries there tend to be higher

Price pointed out that in addition to fewer hours, more generous leave policies would actually create demand for jobs. “In practice, federal policy incentivizing employers to offer more paid vacations, family and parental leave and paid sick days, in addition to getting the US closer to international norms regarding these vital labor standards, would likely lead to additional hiring at the current relatively low level of demand.”

And Baker argued:

“There seems to be no way to avoid the fact that we are destined to have a prolonged period in which the economy is operating below its potential output. It makes much more sense to turn this into leisure that can be enjoyed by everyone, rather than unemployment that is suffered by an unlucky minority of the work force.”

2. Write down mortgages, fix housing crisis, create one million jobs?

A new report by the group New Bottom Line argues that fixing the mortgage crisis by getting banks to reduce the principal on home loans would actually create 1 million jobs.

The housing bubble so overinflated the cost of houses that a whopping one in five homeowners in the US owe more on their mortgage than their home is actually worth in the current market. New Bottom Line points out that the same big banks that created the housing bubble, artificially inflating the value of housing by repackaging mortgages into "securities" and selling them at a profit, are the ones that can fix the problem. But, of course, they're unlikely to do so without someone forcing their hands.

So the groups affiliated with New Bottom Line are calling on state attorneys general to call for restitution to homeowners in their settlement with the banks over foreclosure fraud. If the lender writes down the loan, they reduce the amount of the principal from what the borrower originally signed up to borrow to the actual market value of the house right now. The report estimates that this process would save homeowners $71 billion per year.

According to their blog:

“Six billion dollars per month that is currently going to mortgage payments would instead go toward buying groceries, school supplies, and other household necessities. As consumer demand picked up, businesses would start hiring again. The report estimates that putting $71 billion into American consumers’ pockets annually would help create more than one million jobs per year.”

What about the cost? Well, according to New Bottom Line, “Last year, the nation’s top six banks paid out more than twice the cost of the plan ($71 billion per year) in bonuses and compensation alone ($146 billion in 2010). Currently, the nation’s banks are sitting on a historically high level of cash reserves of $1.64 trillion.”

The New York Times editorial page also supports writing down the principal on home loans.

“Reducing principal is a better solution than lowering interest rates, because it reduces payments and restores equity. Bankers resist, because it could force them to recognize losses they would prefer to delay. The administration has resisted, in part because principal reductions are seen as rewarding reckless borrowers.”

That's an important point—that the bankers would only delay their losses by refusing to write down principal. The housing market is unlikely to return to its previous levels—Grantham noted that massive housing wealth was “an illusion”--and so even if the banks choose instead to foreclose on millions of homes, they're then stuck with a property they too cannot sell for its previous estimated value, and by flooding the market, they'll drive values down even further. Keeping people in their homes is good for the banks, good for the economy, and good for the homeowner. New Bottom Line is right to call its solution “Win-Win.”

3. Early retirement.

There's been a lot of focus on the youth unemployment rate, with good reason. But there's also a crisis facing older workers, who, facing long periods of unemployment, are being forced to spend their retirement funds early. Meanwhile, as many lost their retirement funds in the first round of the financial crisis, or are seeing their pensions taking a hit, they're being forced to work longer, thereby not freeing up jobs for those younger workers.

Rep. Dennis Kucinich offered up a solution back in 2010, a plan he said would create 1 million jobs: a temporary reduction in the age to receive Social Security benefits. Currently, workers can begin getting reduced benefits at age 62; Kucinich's plan would lower that age to 60.

This might sound wild, as right now what we're mostly hearing about are benefit cuts or raising the age of retirement. But our austerity-obsessed politicians are wrong. Kucinich argued:

“Many older workers can’t wait to retire, while many younger workers desperately need work. My plan enables older workers to take early retirement, thereby freeing up those jobs for younger workers who are currently unemployed. If just 25% of eligible workers choose to retire early, we can very quickly open one million job opportunities. These are not temporary jobs, but permanent jobs that already exist in our economy, even under the current recessionary circumstances.”

And way back in 2009, progressive commentator Thom Hartmann argued for lowering the retirement age to 55, and actually increasing benefits:

“If enough Boomers left the job market, it would even flip the current dynamic of too-many-people-chasing-too-few-jobs upside down, and create a tight labor market. Tight labor markets drive up wages.

And as wages go up, tax revenues – which are paying for Social Security (among other things) – would increase.”

And, of course, early retirement would give those workers spare time to spend with their families and friends, travel, and enjoy the benefits they've worked their whole lives for.

4. Bicycle stimulus.

"Green jobs" have been called for as part of any recovery package since the beginning of the economic crisis, a way to not only move the US back toward economic prosperity, but also to shift our priorities toward environmental sustainability. One interesting example of green job creation would be investing in bike paths in urban areas where cycling can easily take the place of car travel. 

If fixing the mortgage crisis is win-win, investing in bicycle infrastructure is win-win-win: it not only could create jobs that would stimulate the economy, but is better for personal health and also for the environment, replacing gas-powered cars with people-powered transit. Bicyclists save money on transit, are healthier overall, and don't have to spend time and money on the gym, and a city that invests in bike paths and safety encourages more and more people to take up biking to work.

Nancy Folbre blogged at the New York Times:

“Major improvements in bike infrastructure wouldn’t just make it easier to get to work. They would also create work, a high priority in our high-unemployment economy.

Construction of bike paths offers more job creation per infrastructure dollar than investment in roads. (For more details, see this recent study by my University of Massachusetts colleague Heidi Garrett-Peltier, who analyzed 58 projects in 11 cities, using an input-output model to measure employment impact).”

When people drive less or give up owning cars entirely, the money they would have spent on gasoline and car insurance then can be pushed back into the economy in other ways—Philly CarShare noted that cutting back on driving increased people's purchasing power by nearly $3000 a year.

In addition to bicycling, the Center for Economic and Policy Research suggested another green transit stimulus—a temporary reduction in the cost of mass transit for one year. This would put money back in commuters' pockets, as well as providing an incentive for people to switch to mass transit from their cars. Mass transit doesn't provide the health benefits of bicycling, but it is much greener—and cheaper—than automobile use, and making it still cheaper would help out the very people who, once again, are most likely to spend the money they save in other ways.

5. Raise wages.

Republican presidential candidates like Rick Perry have been trying to score with the talking point that 46 percent of Americans don't pay any income taxes.

Perry, especially, doesn't like to follow that point up with an explanation of why. It would undermine his chief campaign promise: that he's a job creator, that as governor of Texas he's been good for the economy, because the jobs created on his watch have been low-wage jobs, the kind that keep workers poor and thus under the minimum income required for federal income taxes.

The answer that is little discussed by Republicans or indeed Democrats is that increasing wages for workers would actually mean more tax revenue for the government—without a need to actually “raise” taxes. It would mean more money in the economy, as those workers would have more to spend.

Grantham, hardly a raving socialist, argued:

“Today the artificial sugar-coating of increasing debt has been removed and we must live with the reality that an average hour’s work has not received a material increase for 40 years. Without increased debt and without gains in hourly wages, how can there be sustained broad gains in consumption? Only Chanel suits, Hermes scarves, BMWs, and their ilk have very strong sales, and these top-end items are just too small a fraction to carry the day. If we want to dig out of our current morass, don’t we have to change this equation and isn’t the most direct way of doing this to divide the pie more evenly?

. . . Wouldn’t it be better for us to decide deliberately and by ourselves that income distribution which creates the best balance of social justice and incentive to work?”

The federal minimum wage isn't enough to support one person, and certainly not enough for a family—a full-time minimum wage worker makes $15,080 a year, nearly $3,500 below the poverty line. Raising the minimum wage to a living wage would create an economic stimulus, putting additional money into the hands of those who are the most likely to spend it, rather than save it.

While Michele Bachmann and others have argued that the minimum wage is a "job-killer," Doug Hall noted that this isn't true. ”Previous research showing a significant negative impact have been displaced by studies showing that an increase in the minimum wage has a small — and even positive — impact on employment.”

It's not just the minimum wage that needs to go up. The federal government might have the leverage to control the bottom, but it was the efforts of unions that drove up wages for years, and increased unionization would again result in higher wages. Even as union rights are being attacked from all sides, union workers make more money than non-union workers in the same field, and enjoy better benefits and working conditions, adding to their quality of life.

As Grantham pointed out, US workers are extremely productive, well above the developed world average, and yet they've seen almost none of the results of their productivity. It's time to fix this, for the sake of the economy, for the workers, and for all of us.


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