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I expect you have threshhold effects in the way demand reduction happens. I would think that a 20% reduction across workers is less disruptive than 20% of workers being laid off - there's a smaller chance that they will fall in arrears on mortgage payments, lose their house or other such irreversible things that tend to happen when people take a big hit.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Mar 4th, 2009 at 02:21:41 PM EST
[ Parent ]
But then you don't get the countercyclical effect of unemployment relief - with 20% being unemployed, you don't get an actual income reduction of a fifth...

Un roi sans divertissement est un homme plein de misères
by linca (antonin POINT lucas AROBASE gmail.com) on Wed Mar 4th, 2009 at 06:36:57 PM EST
[ Parent ]
In Germany and Austria, as well in the case of hours reduction the gov't pays some money out to reduce the shortfall in monthly income for the workers.
See the wikipage for Kurzarbeit. The monthly wage reduction has to be at least 10% that the gov't takes action and pays for 2/3 of the net difference to the full pay.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Wed Mar 4th, 2009 at 07:15:44 PM EST
[ Parent ]
Not sure about that. The swedish unemployment subsidies are - for all their faults - really well adapted to industrial workers. If you have worked a year or more and done the bureacracy right, you will get about a year and a half on 80% of your former salary. So, in effect there is more demand reduction this way. Unless the rules for part-time unemployment covers this, which is more then I know. The rules keep on changing.

From a crass economic standpoint, if you first work less for a year and then is fired anyway you will get 80% of the lower wage (that is 64% of the wage you had before the crisis). Though from a social standpoint it is better to have everyone working 80%, as the effects of being shut out from productive society can be pretty harsh.

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by A swedish kind of death on Thu Mar 5th, 2009 at 04:56:06 AM EST
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