Oranges Always Find Employment

January 04, 1991|By TRB

WASHINGTON. — Washington--PARTNERSHIP in a law firm was supposed to be a lifetime job. But in this recession even blue-chip law firm partners are getting laid off. Judge Irving Kaufman, doyen of the New York bar, pouts in the New York Times: ''At one time, law firms took care of their own, standing behind their partners and associates through hard times.'' And it does seem reasonable to ask why the burden of bad times must be borne by a few rather than shared by the many.

But lawyers aren't the only ones being laid off. Between June and December 700,000 people lost their jobs. If, as mainstream economists predict, unemployment peaks next summer at something like 7 percent, that will mean another one and a half million more people out of work. We will consider ourselves lucky if the recession is so mild. Yet the question for society is the same as for the law firm: why can't this burden be shared?

If the economy shrinks by 2 percent -- and most economists don't expect anything so severe -- that would represent a loss of about $2,000 for every family of four. Painful, but not catastrophic. But the loss will not be spread around at $2,000 a family. For some families, the loss of income will be total.

Why does it work this way? Why, for example, does a company facing a downturn lay off 10 percent of its workers instead of asking all of its workers to share a one-tenth cut in hours and pay?

Labor markets are strange. ''There isn't any unemployment of oranges,'' notes Martin Weitzman, a Harvard economist. Why doesn't the invisible hand find a job for practically every willing worker, the way it finds a mouth for practically every ripe orange? For a variety of reasons, adjustments for bad times tend to take the form of less employment rather than lower pay. The forgone labor is lost for good -- a dead loss to society, making us all poorer.

For a while, the Keynesians thought they'd solved the puzzle of unemployment through government's ability to adjust the levers of aggregate demand. That dream died in the stagflation of the 1970s. The supply-siders who came along next had a similar dream, based on a different theory. That dream is dying now (though the dreamers continue to blame our rude awakening on departures from the True Faith). Neither John Maynard Keynes nor Ronald Reagan, it seems, could abolish the business cycle, the economy's inevitable ups and downs.

In 1984 Mr. Weitzman published a widely discussed book called ''The Share Economy,'' urging that workers be encouraged to take a large part of their income as a share of the company's revenues or profits, rather than as a fixed amount of money. His emphasis was not on the conventional benefits of profit sharing for the firm -- making workers more loyal, etc. -- but on the effect of such an arrangement on the general economy. In short, a company facing lower revenues would have far less incentive to lay off workers. And this in turn would dampen the swings of the business cycle between recession and inflation.

In the past few years profit-sharing systems have multiplied in the American economy. So have contracting and consulting arrangements, part-time work, bonuses and other employment relationships that implicitly tie remuneration to a company's fortunes. Mr. Weitzman says with a ghoulish chuckle that he and colleagues have been waiting for a recession to test their theory that flexible pay should mean fewer layoffs.

vTC The auto industry has made the connection explicit. Ford and General Motors signed profit-sharing contracts with the United Auto Workers in 1984. In return, the union got a variety of rules to limit layoffs. The average Ford worker collected more than $13,000 in profit-sharing between 1984 and 1989, but will get nothing for 1990.

How can society move toward a share economy? There are already laws on the books giving lavish tax breaks to companies that form ESOPs, or employee share ownership programs.

Unfortunately, ESOPs have become mainly a dodge for investment bankers, who use them to leave companies saddled with debt, and employees without a secure retirement (because the ESOP has replaced their pensions and retiree health care). Most benefit of the tax breaks goes to the shysters, not to the workers.

Workers might be more enthusiastic about sharing bad times if executives were also sharing. But it rarely works that way. For 1989, when GM workers saw their profit share cut by 82 percent, to a mere $50, the bonus for Chairman Roger Smith dropped just 7 percent, to $1.4 million, and he got an 11 percent raise in salary.

There's a bright side to recession-sharing, too, if it takes the form of shared workload as well as shared pay cuts. Contrary to widespread belief, Americans work far too hard -- or at least they work far too long. The average American worker, after five years on the job, gets a total of 23 paid holidays and vacation days. A German gets 40. A Japanese is entitled to 36 and actually takes about 29.

Clearly the problem with our economy is not that we're not putting in enough hours. Surely it makes more sense from every point of view for the many to trade slightly smaller incomes for slightly more time off than for an unlucky few to have more time off than they want and no income at all.

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