Friday, 17 July 2009

A simple solution for labour market flexibility

OK, this solution is simple only to the extent that it's also simplistic.

But it might just make a contribution.

Arnold Kling asks (via Mark Thoma) "Why is the Recovery of Modern Labor Markets So Slow?" Part of the answer - I emphasise it's only a part - is the reluctance of people to accept low paying jobs while they still feel there's a chance to get a better paid opportunity. This means that people burn through their savings, reducing their own economic welfare as well as society-wide GDP, when they may end up having no choice but to take the same low-end job that was available to them when they were first laid off.

Why do people act this way? Undoubtedly part of the cause is a cognitive issue: the hit to pride and self-esteem from accepting a lower-paid and lower-skilled job. But another aspect highlighted by Thoma is that they want to spend their time looking for a better job instead of working at a worse one.

Now how much time do people really spend looking for jobs? Is it a 40-hour week or is it a couple of hours a day plus whatever interviews they can find? Naturally this will vary by person, but I suspect it is rarely a full-time task.

And so this argument boils down to a coordination problem. If I'm working from Monday to Friday and that elusive interview comes up - but they want to see me on a Wednesday - what am I supposed to do? Put at risk the new job I've been working at for only three weeks by taking a day off, or just pass on the opportunity?

Instead, if the default position were to conduct all interviews on Saturday mornings, much of this problem would disappear.

Of course many jobs - particularly the lower-skilled jobs we're talking about - are not Monday to Friday any more. But on balance they are still more likely to take place during the day and during the standard working week. If interviews were, as standard, conducted in evenings and weekends, this would much reduce the disincentive for people to take a temporary job while looking for a better one.

A similar option, on a larger scale, is to structure more temporary jobs around four-day weeks so that employees have a whole extra day to job hunt. Employers of the temporary workers might not be too keen that their people are looking for new positions, but I think they know not to plan on holding onto most of their staff too long. If a subsidy is required to assist this transition it may be a worthwhile way of spending fiscal stimulus money. I mentioned a few months ago that retraining seems to be the best way of achieving stimulus, and this feels like a variation on that theme.

This of course is a small - perhaps almost trivial - influence on what is a major problem for millions of people. But if it makes a difference of just a couple of percent, hundreds of thousands of people could benefit. It may be worth a try.

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