Time for a Reduced Work Week?

The global economy is sinking deeper into a recession and stories of layoffs at factories, plants and businesses are appearing daily in newsstands across the world. While the auto sector in Southern Ontario was the first industry in Canada that announced widespread layoffs due to the recession, the impact of the downturn is quickly spreading to other sectors of the economy as well.

However, despite many gloomy articles, there are also stories appearing of companies and employees that are working together to come up with ways of fighting the impact of the downturn. One way of doing so is through work-sharing. Last week, the Toronto Star reported that work-sharing has become a growing trend as a way of preventing or reducing layoffs. While it is not a new idea, it has been attracting an increasing amount of attention as a viable policy to reduce the financial pressures of businesses that are threatening to leave thousands of people without jobs.

Work-sharing can take many forms. Some companies offer employees the option of collectively reducing their pay in order to avoid layoffs. Other businesses have reduced their workweek to four days, or have reduced the incomes of higher-salary employees to compensate for company losses. Mandatory vacation periods of a few weeks at a time or temporary lay-offs are also options being used. Companies in Canada, including Sears and Rogers Communications, have already used some of these methods to reduce the number of employees they have had to lay off.

In particular, introducing a reduced work week has been found to help companies in difficulty. Government policies can help make a reduced work week more viable for both businesses and workers. Currently, Services Canada offers a Work-Share program that provides Employment Insurance benefits to compensate employees who are willing to work a temporarily reduced workweek.

This type of program could help increase employment by enabling a greater number of workers to do the same amount of work. With EI supplementing their pay, workers would not suffer the financial hardship of either a pay cut or outright layoff, which would leave them relying on EI benefits, social assistance or their savings.

The government encourages work-sharing as an alternative to layoffs because it makes it easier for companies to retain existing jobs during an economic downturn and return employees to full-time work when the recession is over. If a company lays people off, it is much more difficult to regain those jobs once they are lost.

However, there can be downsides to this type of policy. Work-sharing can sometimes be the choice of the employer, but not the employee. This can leave workers with little say regarding the arrangement of their work schedule or number of hours they work, and have financial implications for them.

As well, when implementing a reduced work week, it is important to maintain employee benefits. Many employers offer health and other benefits only to employees who work a full 40-hour week. It would be important for governments and businesses to maintain benefit levels for workers who reduce their hours so they can still access benefits.

Work-sharing can take many forms, and if implemented it should take into consideration the needs of employees, particularly those on low-incomes. While reducing the pay of a high-level executive would probably not have a substantial impact on that person’s quality of life, reducing the pay of someone making close to minimum wage could have a serious impact on their ability to meet their basic needs.

The idea of a reduced work week is not new – in fact, is a topic that has been explored by economists for over a century. Many arguments, both theoretical and practical, exist in favour of it and against it.

In my next blog, I’ll be exploring some of these arguments – stay tuned for more on the topic!