Here’s your Big Jobs Idea

Hey, here’s your Big Jobs Idea: It looks as if the UAW is about to agree to new contracts based on flexible pay–e.g. no raises, but bonuses linked to something like profits.  Why is this signifcant? Because if the entire economy were filled with workers whose pay was flexible, there would be a lot more jobs. At least that is the argument of economist Martin Weitzman in his 1984 book The Share Economy.

Weitzman isn’t after some gooey labor-management cooperation. He is dealing in hard mathematical incentives. If workers make only their base pay plus a share of profits, for example, employers have an incentive to hire people as long as they are worth the base pay.  Meanwhile, the deal can be structured so every new hire slightly dilutes the “share” of all the previous hires. Where before you were splitting the profit “pot” by 100 workers, say, now each worker gets 1/101th.  That’s not gooey–it’s even a little nasty. But the upshot is that employers have an incentive to scoop up workers like “vacuum cleaners” in good times and to avoid layoffs in bad times. (And they would still have to pay enough to make workers want to work for them.)

Why isn’t this the big new jobs idea that Obama’s team is supposedly looking for? I’m not alone in having this thought! 1) The “share” strategy is focused totally on increasing employment; 2) It doesn’t involve big new spending–maybe a relatively small (in deficit terms) tax break to encourage firms to set up “share” payment systems. In fact, Weitzman specifically pitches his proposal as an alternative to Keynesian deficit spending. He notes that Keynes confronted the dilemma that in a recession wages are typically “sticky” downwards–but a “share” system solves that problem, since wages fall instantly with profits or sales or whatever the “bonus” is pegged to; 3) Labor unions–or at least the UAW–are already doing it. Obama could flatter them by saying he was following their lead. That’s a historic opportunity, since entrenched unions defending high-paid workers are traditionally the biggest obstacle to “share” schemes.

It probably doesn’t help the proposal to note that it’s almost a perfect Third Way idea, a policy that avoids Dem dogma (more spending) and Republican dogma (cut the government). It certainly seems preferable to the dreary collection of tax credits, spending and mortgage relief the administration is rumored to be planning. It might even pass. Are Republicans really going to oppose a tax incentive encouraging private sector job growth by giving employers more flexibility? …

Even if it’s total BS–which I doubt it is–it will solve Obama’s political problem (the need to say something fresh).

Gene Sperling? Bruce Reed? Maybe give Prof. Weitzman a call?…