Spreading the Lack of Wealth Around

November 13, 2009
Posted by Jay Livingston

Suppose a company in these hard times has to cut its payroll by 10%. It has two choices:
  • fire 10% of the workers
  • fire nobody, but reduce everyone’s hours and pay by 10%
Asked about this, Larry Summers, a top economic advisor to Obama, said,
It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.
This is a policy non-sequitur – how the work is divided is a separate issue from how much work there is. And as Paul Krugman points out today after quoting this line, we are not in fact making much headway on expanding the total amount of work. The question of distributing the work remains, and Summers was dodging it.

But in answering it, we should consider not just the effect on individuals. After all, if you look at it as an economist might, the overall impact of the two policies is exactly the same. But there's a more sociological view that also considers the effect not just on the sum of the individuals but on the institution as a whole.

The Summers quote and this problem reminded me of a talk given recently by the president of a private university. Like all such schools, its endowment had taken a big hit. Here’s what he said (I’m paraphrasing*):
Other schools put in a hiring freeze. That’s fine with the faculty who are there. The only ones who suffer are people they don’t know – the people who didn’t get hired. But we put in a pay freeze. That may have hurt each faculty member somewhat. But it allowed us to hire new faculty, and boy was this a good time to be hiring. With those other schools taking themselves out of the market with their hiring freezes, we were able to hire twenty absolutely top rate people that we might not have gotten otherwise.
Spreading the lack of wealth around benefited the students and the university as a whole. And in a non-financial way, it also benefited the faculty whose pay had been frozen.

And about those new faculty, he was right, at least according to my informant, a sophomore at the university. Last weekend, he went to a panel discussion that included one of them, and he was so impressed that he decided on the spot to try to take courses with her.

*I wish I could quote the lines verbatim. This president is just an excellent speaker – part scholar, part stand-up.

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