WORK LESS Institute of Technology

LEISURE AS A FACTOR OF PRODUCTION V

Queensland's summary of Sandwichman's synopsis of Chapman's theory

by the Sandwichman

The Sandwichman OWNS S.J. Chapman. I'm not happy about that but if you do a Google search on S.J. Chapman and Hours of Labour all you get (with the few exceptions I'll mention) is me droning on unrequitedly about the damn thing for six or seven years. The exceptions are the Derobert article in the Journal of the History of Economic Thought, a mere mention in a comment on Derobert by Spencer and a submission on the "Reasonable Hours" test case to the Australian Industrial Relations Commission from the government of Queensland. In print, you have to go back to Nyland's 1989 "now you see it, now you don't" story about the strange disappearance of Chapman's theory from neo-classical economics.

The Queensland government, it so happens, based its account of Chapman's theory on my discussion of it in "The 'lump-of-labor' case against work-sharing: Populist fallacy or marginalist throwback?" Anyone who has read all four previous posts in this series might have noticed that although I've been talking about Chapman's theory, I haven't actually described it yet. That's called building suspense. Now comes the denouement -- in three parts, no less.

Today, the "executive summary": the Queensland government's summary of my synopsis. Tomorrow, the "introduction": my synopsis of Chapman's theory. Friday, the illustrious "footnote" itself, supplemented by my four part reconstruction of Chapman's diagram.

From the government of Queensland's submission to the Australian Industrial Relations Commission on the "Reasonable Hours" test case:

5.2 Working hours and productivity: an economic analysis

The impact of longer hours on productivity has been a traditionally complex and controversial question in economics. Much of the conflict arising from this debate has stemmed from the difficulty in determining a time frame around which to measure productivity changes. For instance, a short-term view may yield vastly different conclusions in terms of the impact of extended hours on productivity than a long-term view, when the fuller consequences of working extended hours have begun to materialise.

5.2.1 Theoretical review

The study of the relationship between work intensity and fatigue owes much to S.J Chapman's theory of the hours of labour, where in 1909 Chapman demonstrated market failure in the determination of working time (Walker 2000). This argument initially involves the establishment of a concept of 'optimal hours'. The main points of this argument can be summarised as follows:

· a mass of evidence indicating that reductions in hours of work had not led to proportionate declines in output;
· modern industry fatigue was increasingly less physical in nature and more a combination of psychological and physiological as a result of specialisation and increased need for mental concentration;
· the reduction of hours allowed better-rested workers to produce as much or more in the shorter hours;
· the total value of the output would initially rise as the working day increased but eventually the total output as well as the output per hour would decline as the working day became so long that it prevented adequate recovery from fatigue for workers;
· this is the case because, beyond a certain point, each additional hour of work would be contributing to the output of the current day's total output but at the expense of the following day's output capacity; and
· the intensity of the work involved would dictate the point at which total output begins to fall and thus the length of the 'optimal' working day.

The second half of this argument explores whether the free market can arrive at the 'optimal' length of day, and can be summarised as follows:

· the maintenance of a long-term optimum by employers would require short-term restraint;
· each individual employer could never be certain of reaping the benefit of their restraint as another firm could potentially entice the employer's well-rested workers away with a wage premium;
· therefore the optimal output work time is a form of investment without equity;
· simultaneously, Chapman (1909) assumed that workers would choose a longer working day than was prudent (although not as long as the working day preferred by employers), primarily because of a general short-sightedness that would mean workers would consider their immediate earning capacity more than their longterm earning capacity¹; and
· the outcome in a free market situation would therefore be one where employers and employees acting in self-interest would each tend to select a working day that was longer than the 'optimal' hours.

Curiously, since this early work by Chapman, economics has frequently assumed that market forces alone will deliver the optimal length of work time despite never having discredited Chapman's arguments. Economists have attempted to estimate the optimum output week, using analysis of long-term productivity trends. For example, Denison (1962) estimated the optimum output week to be close to 48.6 hours; suggesting that moderate reductions in work time below this amount could be offset by gains in productivity up until the point of maximum hourly productivity, which he predicted to be 33.9 hours.² Reductions in work time below this point, he projected, would result in a more than proportionate fall in output.

Since the 1960s the exploration of reduced working hours has concentrated on the prohibitive nature of fixed labour costs, which imply an increase in average hourly labour costs with the reduction of hours of work and therefore negative employment effects.³ However Walker argues that the cost per unit of output is vastly more relevant than the average hourly cost of labour. He contends, "If hourly productivity increases more than hourly labour costs, the net result is a decrease in unit labour costs". The difficulty with this in practice is that employers would incur hourly cost increases immediately, whereas the productivity adjustment would only be realised over an extended period of time. Returning to Chapman's theory of hours, given the high fixed costs of labour, the investment by employers in reducing working hours is even greater with the time it will take to achieve productivity gains.⁴ Walker concludes that fixed labour costs do indeed impose a formidable barrier to reducing working hours but that contrary to popular thought, this is not because of the increased unit labour costs but rather the intrinsic risk in investing in potentially mobile workers.

¹ Chapman (1909) considered three elements in gauging the optimal day for the worker; 1) the wage, 2) the marginal value of leisure and 3) the disutility of work.
² Walker , 2000.
³ Hart, 1987.
⁴ The time taken for a return on this investment would be dependent upon four factors; (1) the ratio of fixed costs to variable costs, (2) the size and timing of wage hikes, (3) the size of the productivity gains and (4) the time it takes to achieve them.

Next: Sandwichman's Synopsis of Chapman's theory

Posted by sandwichman at February 1, 2006 11:46 AM