On 27 January 2015 the Swiss government announced that Swiss companies could reduce their wage bills by cutting staff working hours and compensate them for the lost pay with partial unemployment benefits. The objective of the measure is to limit layoffs brought about by the rapid rise of the Swiss franc. Companies are required to demonstrate that the need is driven by the strengthening of the franc.
While this might be an effective way to reduce short-term layoffs it is an economic own-goal. If Swiss workers work less, they will produce less and reduce company output. This will in turn reduce national output increasing the possibility of a recession. It will also eventually require an increase in taxes (or payroll taxes) to pay the additional unemployment benefits thus reducing the take-home pay of all workers. Thinner wallets will then reduce aggregate spending power negatively impacting on the demand side of the economic equation aggravating the problem further.
It is akin to the French 35-hour week. The logic ran that if staff could only be hired for 35 hours a week then employers would need to employ more of them. It assumes that output and the demand side of the economy are unaffected. This policy, introduced in France in 2000 failed to deliver. The challenge to this thinking is that it is based on the lump of labour fallacy, a belief that the number of jobs is fixed. Most economists believe it is variable.
In an interview with the SonntagsZeitung Peter Spuhler, the boss of Stadler Rail, made an alternative suggestion to address the challenges of the strong franc. He suggested that workers work an extra two hours a week for the same pay. This is based on sounder economic logic. It would hopefully increase output and revenue (or at least maintain it after CHF price reductions) relative to existing wage bills allowing businesses to avoid layoffs. In addition, it would maintain aggregate spending power by avoiding the inevitable increase in payroll taxes that will be required to pay the additional unemployment benefits that will result from the Government’s plan.
Federal Press Communiqué – 27 January 15 (in French)
Shorter work hours touted in response to strong franc (Swiss info – in English)