Economic Intelligence Briefs

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Work sharing and unemployment

Some politicians and economists, particularly in Europe, believe that unemployment can be reduced through work-sharing. This policy ideally requires workers to reduce the number of hours they work weekly while their hourly wage rates remain unchanged. Employers are expected to hire new workers to fill the void of work done in their firms.

Work-sharing has been in practised in Germany. A study of the German experiment for the years 1984-94 concludes: "Germany’s work-sharing experiment has allowed those who remain employed to enjoy lower [number of] hours at a higher hourly wage, but likely at the price of lower overall employment."

Source: Jennifer Hunt, "Has Work-Sharing Worked in Germany?" Quarterly Journal of Economics, February 1999, pp. 117-148.

Unemployment and experience-rated premiums

One reason why Canada has unemployment rates nearly twice those of the United States is that the UI premiums paid by employers are determined differently. In Canada, employers pay a flat rate per worker. Most US states pay experience-rated premiums, which are higher when more of its workers draw UI benefits. Under the US system, employers have an incentive to keep workers on their payrolls during recessions while Canadian employers do not.

In 1985, Washington state switched from flat premiums to experience rating. This policy "lowered the level and the seasonality of UI claims and the seasonality of unemployment." It also "gives employers an incentive to ‘police the system’ and contest invalid claims for UI" because if they don’t, their tax rates increase in the future. The ratio of claims that were turned down rose from 51 to 66 percent.

Source: Patricia Anderson and Bruce Meyer, "Using a Natural Experiment to Estimate the Effects of the Unemployment Insurance Payroll Tax on Wages, Employment, Claims and Denials," NBER Working Paper no. 6808.

Public attitudes on capital gains taxation

In 1995, the proportion of US families with incomes between US$25,000 and $40,000 who owned stocks was nearly 50 percent. A public opinion survey showed that over two thirds of Americans who own stocks favour a cut in the capital gains tax, while only 46 percent of non-investors do. As a result, cuts in the rate of capital gains taxation has ceased to be a partisan issue in the United States.

Source: Paul A. Gigot, "This isn’t what Marx meant by Das Kapital," Wall Street Journal, March 19, 1999.

Labour Sponsored Venture Capital Corporations (LSVCCs)

LSVCCs were created in 1985 to channel venture capital to small- and medium-sized businesses in Canada and to involve labour in such investments. In 1995 alone, LSVCCs raised $1.2 billion by offering investors tax benefits which cost governments about $470 million, not counting RRSP deductions.

The LSVCCs have been slow to invest proceeds in business (they keep them in government securities), have failed to invest in the low end of the venture capital market, and did not involve labour. There exist several more efficient methods for attaining the objectives for which LSVCCs were created.

Source: Duncan Osborne and Daniel Sandler, "A Tax Expenditure Analysis of Labour Sponsored Venture Capital Corporations," Canadian Tax Journal, no. 3, 1998.

"Economic Intelligence Briefs" is researched and edited by Herbert Grubel, David Somerville Chair in Taxation and Finance at The Fraser Institute, who invites readers to send contributions to Fraser Forum or herbg@fraserinstitute.ca.

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Last Modified: Thursday, June 10, 1999.