The unemployment rate is expected to average 10.2 percent for 2010, 9.1 percent for 2011, and 7.3 percent for 2012. With this in mind, this Issue Brief describes a job sharing tax credit, designed to provide a quick and substantial boost to the economy. It would use tax dollars to pay firms to shorten the typical workweek, while keeping pay constant. This should cause employers to want to hire additional workers. A rough estimate of the impact of this tax credit is between 1.3 and 2.7 million jobs created.economic stimulus, fiscal stimulus, ARRA, recession, paid time off, work-sharing, work sharing, work share

Dean Baker

English

Research Papers in Economics

 
Issue Brief ￿ October 2009 
 
*Dean  Baker  is  an  Economist  and  Co-director  of  the  Center  for  Economic  and  Policy  Research  in 
Washington, D.C. 
 
Job Sharing: Tax Credits to 
Prevent Layoffs and Stimulate 
Employment 
 
 
Baseline  projections  from  the  Congressional  Budget  Office  show 
unacceptably high rates of unemployment for several years into the future. 
According to CBO, unemployment will average 10.2 percent for 2010, 9.1 
percent for 2011, and 7.3 percent for 2012.
1 The large projected deficits for 
these years, coupled with a political environment that is hostile to additional 
stimulus, will make it difficult to get any substantial stimulus approved by 
Congress. At the same time, it is also difficult to find forms of stimulus that 
will provide a substantial – and quick – boost to the economy.  
 
Job sharing is a mechanism that could maximize the employment from each 
dollar  of  stimulus.  The  basic  point  is  simple:  job sharing  would  use  tax 
dollars to pay firms to shorten the typical workweek or work year, while 
keeping pay constant. If workers’ purchasing power is held constant even as 
they  work  fewer  hours,  then  labor  demand  will  be  held  constant.  This 
should cause employers to want to hire additional workers to make up for 
the fewer hours worked by their incumbent work force. For example, if the 
firm had all of its workers putting in 5 percent fewer hours, then it should 
want to hire approximately 5 percent more workers. Or, alternatively, if an 
employer was facing the difficult decision to layoff workers, this tax credit 
would  provide  an  incentive  to  decrease  total  hours  worked,  rather  than 
letting individual workers go.
2 
 
The  effects  of  this  tax  incentive  could  be  dramatic.  If  employers  of  60 
million workers reduced work hours by an average of 5 percent, then it 
should  lead  to  the  creation  of  3  million  new  jobs  –  before  taking  into 
account  any  multiplier  effect.  In  principle,  these  jobs  could  be  created 
quickly and would be in the private sector. (A similar payment, comparable 
to the tax credit, could also be extended to state and local governments.) 
 
Mechanics of the Job Sharing Tax Credit 
The credit is intended to compensate employers for shortening work-time 
while keeping compensation unchanged. For example, suppose an employer 
had been employing workers for an average of 40 hours per week over the 
prior  year.  If  it  were  to  shorten  the  average  workweek  by  2  hours  (5 
percent) while keeping compensation unchanged, then it would be eligible 
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BY DEAN BAKER* CEPR  Job Sharing: Tax Credits to Prevent Layoffs and Stimulate Employment  ￿ 2 
 
to receive a tax credit for the amount needed to keep each worker’s compensation unchanged.  
 
The size of the credit would be capped at $3,000 a year, or 10 percent of the worker’s compensation, 
whichever is lower. This would both ensure that the tax credit is disproportionately directed toward 
workers at the middle and bottom of the wage scale and also limit the incentives for gaming the 
system.  
 
The intention would be to have the credit take effect quickly, so the best route would be to allow 
employers to begin to take the credit by adjusting hours worked beginning at a date not long after 
legislation is approved. The adjustment should be relative to a well-defined base period, for example 
the average number of hours worked by workers in the relevant category in the 3 months prior to 
the effective date. The credit can initially be given based on self-reporting, but can be subsequently 
verified through payroll tax data. As an additional check, an employer can be required to clearly post 
any reductions for the credit on their website and a public website designed for this purpose. This 
would allow the affected workers the opportunity to verify that the hours reductions had in fact 
occurred.  
 
It is likely that larger firms will disproportionately take advantage of this tax credit since it may be 
difficult  for  smaller  firms  to  adjust  their  workplace  for  shorter  hours.  To  correct  for  this,  the 
shortening of hours could also take the form of additional paid vacations or other paid leaves, since 
these should have the same impact on the need for new workers. 
 
Table 1 shows the hypothetical impact of this tax credit under low and high take-up scenarios. In 
the low take-up scenario the rate is assumed to be zero for smaller firms and 30 percent for the 
largest firms. In the high take-up scenario the rate is assumed to be 5 percent for the smallest firms, 
rising to 60 percent for the largest firms. The calculations assume that the average reduction in work 
time is 5 percent.  
 
TABLE 1: Direct Job Creation of a Job Sharing Tax Credit (Average Hours Reduction of 5%) 
Take Up Rates 
Firm Size 
Employment 
(thousands)  Low 
Direct Job 
Creation  High 
Direct Job 
Creation 
1-4  5,606  0%  0.0  5%  14.8 
5-9  6,613  0%  0.0  5%  17.4 
10-19  8,204  5%  21.6  10%  43.2 
20-49  11,801  10%  62.1  20%  124.2 
50-99  8,873  15%  70.1  30%  140.1 
100-299  11,310  20%  119.1  40%  238.1 
300-499  7,813  25%  102.8  50%  205.6 
500-999  7,334  30%  115.8  60%  231.6 
over 1000  40,349  30%  637.1  60%  1,274.2 
Total (thousands)      1,128.5    2,289.1 
 Source: BLS, Business and Employment Dynamics, 2005 and author’s calculations. 
 
With  the  rates  assumed  in  the  low  take-up  scenario  there  would  over  1.1  million  jobs  directly 
created. The rate in the high take-up scenario implies the direct creation of nearly 2.3 million jobs. 
 CEPR  Job Sharing: Tax Credits to Prevent Layoffs and Stimulate Employment  ￿ 3 
 
Table 2 shows the gross cost, assuming that the average credit is $2,000. It calculates the indirect 
job creation under the assumption that additional spending has a multiplier effect of 1.5 (i.e. the 
growth attributable to re-spending is equal to 50 percent of the tax credit).
3 It also assumes that 20 
percent of the GDP generated as a result of the tax credit is recaptured in tax revenue. 
 
TABLE 2: Cost of Net Impact of Job Sharing Tax Credit 
 
Gross Cost 
($2,000 per worker) 
(billions) 
Direct Jobs 
(thousands) 
Indirect Jobs 
(M=1.5) 
(thousands) 
Total Jobs 
(thousands) 
Net Cost 
(billions) 
Cost per Job 
per Year 
(thousands) 
Low  $42.9  1,128.5  207.1  1,335.6  $30.0  $22.5 
High  $87.0  2,289.1  420.0  2,709.1  $60.9  $22.5 
  
Table 2 shows that total job creation in the low take-up scenario will be 1.3 million. In the high take-
up  scenario  it  will  be  2.7  million.  The  average  cost  per  job  per  year  is  $22,500  under  these 
assumptions, far lower than the cost of job creation through other forms of stimulus.
4 
 
While there is much talk in Washington and in the media about the economy potentially being in 
recovery,  it  must  be  noted  that  we  still  have  an  extraordinarily  high  unemployment  rate,  with 
millions  of  people  out  of  work  across  the  United  States  and  millions  more  facing  under-
employment.  This will continue for years to come unless Congress acts decisively to confront the 
issue.  A job sharing tax credit is an inexpensive, quick, and effective way to do this. 
 
                                                 
1 Congressional Budget Office, The Budget and Economic Outlook: An Update, August 2009.  The 2010 and 2011 
unemployment rates were taken from http://cbo.gov/ftpdocs/105xx/doc10521/08-25-BudgetUpdate.pdf, while the 
2012 unemployment rate was averaged from CBO’s estimate for each quarter (see 
http://cbo.gov/ftpdocs/105xx/doc10521/EconProj_Aug09.xls). 
2 There are 17 states that have workshare programs that are designed to achieve a similar outcome by having employers 
reduce hours rather than cut back employment.  (Sen. Jack Reed has introduced a bill that would temporarily provide 
federal funds to current state work share programs and to start-up grants for states that do not currently have work-
share programs. See http://reed.senate.gov/newsroom/details.cfm?id=317119.) These state programs are 
implemented via unemployment insurance systems and prevent employers who were not intending layoffs from 
participating in the program.  In this issue brief's job sharing proposal, the goal is to have employers take advantage of 
the program, whether or not they intended to make layoffs. 
3 Mark Zandi of Moody’s Economy.com estimated the multiplier for spending on the existing state workshare programs 
at 1.69.  
4 See Congressional Budget Office, Estimated Macroeconomic Impacts of the American Recovery and Reinvestment 
Act of 2009, March 2, 2009. Available at http://cbo.gov/ftpdocs/100xx/doc10008/03-02-Macro_Effects_of_ARRA.pdf. 

Job Sharing: Tax Credits to Prevent Layoffs and Stimulate Employment

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Job Sharing: Tax Credits to Prevent Layoffs and Stimulate Employment

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