Could a shortened working week instead of laying off staff save more money and help the economy get back on its feet in the aftermath of the coronavirus crisis? As the coronavirus pandemic continues to wreak havoc with the global economy, here’s an interesting look at the maths, which doesn’t support the laying off of employees at all.
As Novac writes on the 13th of May, 2020, Vladimir Benic, an economist and director of the Zagreb company CareerCentar, gave a concrete calculation pointng to the idea that a shortened working week, in which we work three to four days a week only, could save jobs not only the coronavirus era, but in other crises, too. The text he wrote was first published on his LinkedIn profile.
A similar solution was introduced by the Germans, the text says, not as a result of coronavirus-induced economic issues but following the 2008 financial crisis. In order to slow down the growth of the number of unemployed people in Germany, they introduced a measure of subsidised part-time work, better known as ”kurzarbeit”. They thus retained a larger number of part-time employees, instead of laying off 20 percent of the entire German workforce.
We are translating and transmitting his text in its entirety below:
“Figuratively speaking, laying off 200,000 workers would save a company 19 billion kuna a year due to not needing to pay out for those wages. However, once a company reaches pre-crisis levels, it’s necessary to restart the recruitment process. Given the cost of hiring people and running the business in the range of 50 percent to 200 percent of the annual salary of workers, companies will thus spend a minimum of 10 billion kuna by re-employing workers. So, the net effect of the company’s savings is 9 billion kuna (minus the amount of severance pay the company needed to pay out to those laid off workers).
On the other hand, if companies keep hold of all of those 200,000 workers and reduce their working hours from 40 down to 25 hours per week, that would be save 75,000 workers according to those working hours. Add a 10 percent pay cut to that, and the company would save up to 8.4 billion kuna. In this case, a company would save on the cost that needs to be invested in the re-employment process, and in addition would retain the knowledge and acquired skills of its [retained] employees.
In addition, if we look again at the German scenario, the state could, in the case of retaining workers, help business owners with certain measures to preserve those jobs. If we take into account the positive effect on the state budget in the form of reduced state expenditures for unemployment benefits, the total positive effect of the second business model is greater than 10 billion kuna.
When this image is viewed from the worker’s perspective, the calculation also goes in favour of the second model. For example, the previously mentioned 200,000 workers in a period of one year, with a reduced number of working hours, will see around 6.5 billion kuna left at their disposal.
In this way, they will continue to remain creditworthy, and will change their consumer habits to a lesser extent, which will continue to encourage the development of the economy. On the other hand, if the same number of workers lose their jobs, they will have around 5.5 billion kuna at their disposal, or one billion kuna less for consumption, which will lead to the slower recovery of the [economy of] the country.”
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