Is Work Sharing Effective?

Author Name KAWAGUCHI Daiji  (Faculty Fellow, RIETI) /TSURU Kotaro  (Senior Fellow, RIETI)
Creation Date/NO. February 2010 10-J-013
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Calls for work sharing are always made whenever employment conditions worsen. However, the hurdle for creating employment through work-sharing is very high. The reasons are as follows: (1) wage cuts by mutual agreement based on a relationship of trust between labor and management is necessary (the first hurdle in work sharing), and (2) the introduction of work sharing is limited to workplaces where the substitution of working hours and workers is easy and the fixed costs required for recruitment and training are low (the second hurdle in work sharing). Even rigorous empirical analyses overseas show that it is extremely rare for work sharing to actually function, and Kawaguchi, Naito and Yokoyama (2008) identify a similar trend in Japan. Work sharing is never a magic wand to overcome an employment crisis and we should not place excessive expectations on it. Given the limitations of private sector-driven work sharing, public sector-driven work sharing, such as an employment adjustment subsidy, may be more effective to maintain employment, as a source of funds is ensured. However, a policy response is necessary to nail down the cost-benefit performance of work sharing and avoid distorting the market adjustment mechanism, which is a driving force for smooth flow of the workforce and industrial structure adjustment.