WORK LESS Institute of Technology

CREATING JOBS THROUGH SHORTER HOURS (part 2 OF 2)

From: AFL-CIO American Federationist | November 1962, pp. 19-21.

Employment Effects of Shorter Hours

If the workweek is shortened with no loss in pay, what effect will it have on unemployment? There is no firm answer nor can specific estimates be calculated reliably.

The answer depends in good part on how much the workweek is shortened, how and when it is done, how widely the reduction is applied—and on what other economic developments accompany it. Hours reduction will not take place in a vacuum; its effects necessarily are linked to whatever else is occurring before, during and after the reduction.

No one seriously considers it a magic solution to unemployment or the sole answer by itself. Its strongest advocates claim only that it is but one tool although a fundamental one.

There also are different views on whether its principal value is as a defensive or holding measure— one which prevents increased unemployment—or whether it is equally important as a stimulus, one which generates additional employment.

There is wide recognition, particularly at the individual plant level, that shortening of hours will help prevent layoff of more workers (“cutting hours means less cutting of men”). How effectively it does this depends largely on productivity changes and trends in demand.

The extent to which it will lead to hiring of additional workers is a more complex question. It depends on such factors as management attitudes and its judgment about future needs for labor, the level and trend in demand for the company’s products, the nature of its labor requirements and availability of appropriate types of workers in the area or elsewhere.

But under the most typical and likely circumstances, a company reducing its workweek by several hours ordinarily will have to immediately hire additional workers to provide those hours of work if it wants to maintain approximately the same output or service as before.

The longer-run effects then hinge on productivity movements and whether demand for its products increases sufficiently to enable savings from economies of increased production to finance continued payment to workers. In principle, the combination of the new hiring by this and other companies will build aggregate worker income and, in turn, demand for the products.

The pivotal question, of course, is to what extent, by serving to maintain and often to increase employment, shorter hours will be the dynamic new ingredient needed to bolster demand and increase it to the point where more and more companies have to expand employment further and thereby carry along an accelerating rate of economic and employment growth.

Although no reliable answers can be offered, some rough statistical estimates may be useful to show the potential magnitude and significance of hours reduction in relation to current unemployment levels.

Consider the most recent data available at the time of this calculation. Total employment of non-agricultural wage and salary workers in mid-1962 was 51.3 million (not counting the self-employed, domestic servants or unpaid family workers). Many of these workers (11.2 million) were on workweek schedules under 40 hours for various reasons. This left 40.1 million on workweeks of 40 hours or longer.

For every hour cut from the workweek of this fulltime wage and salary workforce, the number of new employees required to provide the same national total workhours is roughly one million. If 2.5 hours were cut from the workweek, the number of additional employees needed at a 37.5-hour week to maintain the same total workhours would be 2.7 million.

There obviously are many practical limitations in such calculations. It would not be feasible, for example, to reduce hours in all non-agricultural industries uniformly or at the same time.

There also are many factors affecting the actual number of new hires likely to take place immediately upon reduction of hours. The number of new hires would be reduced, for instance, to the extent that some companies made up lost hours by putting involuntary part-timers back on fulltime or by working present employees overtime. Another limitation on hiring is that reduced hours of present employees are not always directly replaceable by new employees. Much would depend on the extent to which work needed in the reduced hours coincided with the skills and geographical location of idle labor. Other significant factors also are involved, some making for even greater hiring. To the extent that new hiring occurs, for example, it would quickly increase demand and touch off additional production and hiring.

But even if the rough ratio of a 1-hour cut in the workweek to 1 million new jobs may be too high for practical purposes, it demonstrates the enormous potential of revision of the workweek as a force for enlarged employment.

If reduction took place for only half the fulltime non-farm workforce, for instance, the rough replacement ratio would be halved: One hour’s cut equals half a million new employed workers. A 5-hour cut to a 35-hour week for only half the workforce would release enough workhours for over 2.5 million jobs.

What if similar rough calculations are made for manufacturing alone? There are roughly 14.3 million fulltime wage and salary workers on schedules of 40 hours a week or more (of 16.7 million total employment). The replacement ratio for a 1-hour cut in the workweek for these fulltime workers is 3 65,-000 additional workers. For a 2.5-hour cut, it is
950,000 employees. For a 5-hour cut to a 35-hour week, it is over 2 million new employees.

In construction, comparable figures are more difficult to calculate because data on hours worked are often affected by weather and other factors. But very rough estimates indicate about 3 million construction industry workers are on workweeks of 40 hours or more. A 1-hour cut in their workweek would be equivalent to fulltime jobs for about 75,000 additional workers. A 5-hour reduction would be replaceable by over 400,000 new jobs.

In broad summary, then, reduction in hours without curtailment of weekly pay is looked to by the labor movement as a vital new tool to swing into action against excessive and rising unemployment.

Since 1953, after Korea, unemployment has doubled, from less than 3 percent then to nearly 6 percent today. For the decade ahead, with the labor force due to grow at a faster rate and advance in technology gaining momentum, unemployment is threatening to mount even more. If the economy does no better in creating new jobs in the 1960s than it did in the 1950s, the decade would close with an unemployment rate of nearly 10 percent—at least 7 to 8 million fully unemployed.

WHY SOME ECONOMISTS DISLIKE SHORTER WORKING TIME (part 3 of 7)

True believers and left-wing kooks

A conspicuous rhetorical feature of the lump-of labor fallacy claim, especially in the mass media, is to suggest that not only are reduced work time policies based on a fallacious assumption but that the fallacy is so blatant that no self-respecting economist would fall for it – only cranks, left-wing kooks or trade union hacks. “It's hard work being a left-wing kook these days,” wrote Bruce Bartlett. “The socialists [in France] figured that there was only so much work to do, so if people were only allowed to work 35 hours per week, rather that 40 hours, then this meant that eight workers would be needed to do the work that seven workers did previously.... Economists call this the "lump of labor" fallacy....”

In a letter to the poet, T.S. Eliot, dated April 5, 1945, Keynes designated shorter hours of work as one of three “ingredients of a cure” for unemployment. The other two ingredients were investment and more consumption. Keynes regarded investment as “first aid,” while he called working less the “ultimate solution.” This specification of reduced work time as one of three strategic choices for maintaining employment echoes a comment in a letter written three years earlier regarding a Treasury memorandum on purchasing power and consumers’ goods in the post-war period. A more thorough and formal presentation of his view appeared in a note Keynes prepared in May 1943 on “The Long-Term Problem of Full Employment.” In that note, Keynes projected three phases of post-war economic performance. During the third phase, estimated to commence some ten to fifteen years after the end of the war, “It becomes necessary to encourage wise consumption and discourage saving, –and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours."

In chapter 5 of Structural Change and Economic Growth, Pasinetti also addressed full employment as a goal of economic policy. He concluded the consequence of technical progress was that effective demand “inevitably manifests a tendency to become under-satisfied, i.e. to generate unemployment, as time goes on.” Pasinetti identified two ways to offset this tendency, by adding new commodities or “by a decrease either in the proportion of active to total population or of the length of the working week or of both.” He protested that this was not the same as saying that technical progress gives society a choice between more goods or more leisure.” Rather, Pasinetti claimed, it reveals “the fixed framework within which the choice has to be made.” It is thus not simply a choice but a necessity to choose confronting society if it is to avoid technological unemployment.

What Keynes and Pasinetti have in common besides the view that the reduction of working time is one way to bolster employment is that their analyses have not been rebutted by any of the authors who allege that such views are based on a fallacious belief in a fixed amount of work. Nor have any of those authors specifically criticized Commons’ suggestion in Industrial Goodwill for varying the hours of work to flexibly distribute a fluctuating total amount of work. Commons summed up his proposition as follows,

Elasticity has to be provided somewhere to meet these fluctuations [in demand for labor]. The elasticity may be provided by laying off a part of the force in hard times and taking them back in good times, or by reducing hours all around in hard times and increasing them in good times. The one method is the method of unemployment for some, the other the method of distributing unemployment and regularizing employment for all.

Did Keynes, Pasinetti or Commons assume a fixed amount of work to be done? Keynes’ stated assumption was of discrepancies between savings and inducements for investment. Pasinetti’s was of a structural tendency toward technological unemployment. Commons assumed a business cycle fluctuation in the demand for labor. The three assumptions are not even necessarily compatible with each other. For example, Keynes spoke of a shorter work time as a cure for unemployment while Pasinetti suggests that unemployment may be a consequence of a failure to reduce working time. Both Keynes and Pasinetti addressed structural unemployment while Commons was concerned with cyclical unemployment. But to be sure, all three treat reducing working time not merely as something that would be “pleasant, if we could afford it” or even as an attractive luxury that is within the means of an affluent society but precisely as a strategy for creating or preserving employment. If those economists’ underlying assumptions translate into a lump-of-labor fallacy, it is perplexing that no critic of reduced working time has seen fit to point it out.

Part 4

CREATING JOBS THROUGH SHORTER HOURS (part 1 OF 2)

From: AFL-CIO American Federationist | November 1962, pp. 19-21.

ECONOMIC TRENDS & Outlook

Most opposition to the idea of attacking unemployment by shortening the
workweek without loss of pay is based on the view that other policies are
more efficient or otherwise more desirable ways of meeting the
unemployment problem.

The case for shorter hours does not rest on the notion it is the best
way. It is based rather on the view, supported by ample evidence in the
past decade of mounting unemployment, that: (1) other economic measures to
achieve full employment are not being applied and perhaps cannot be
applied; and (2) even if other economic policies are successful in
stimulating greater growth in the period ahead, the rate of advance in
technology and other labor-displacing changes is gathering such momentum
that, unless part of the gains in efficiency are distributed in reductions
in hours, it is virtually inevitable that it will show up in persistent
and increased unemployment.

Organized labor has not made shorter hours its first choice in the
campaign against unemployment. Its first choice has been to apply its most
vigorous efforts, all through the last decade, for a range of other public
and private actions to stimulate a more rapid rate of economic
growth. Shortening of hours has been discussed periodically but a major
drive has been held off as a "last resort."

Unemployment has been mounting steadily and is threatening to increase
further because of automation and other technological innovations and
because of the increased rate of labor force expansion due in the
mid-1960s as postwar babies enter the job market. The economic programs
relied on thus far to expand economic growth and job opportunities have
been inadequate. Additional programs discussed as preferable to shorter
hours -- most notably tax reduction, reform of the tax structure, marked
expansion in public investment and an eased monetary policy -- are not
being put into effect. To oppose hours reduction on the ground that other
approaches are sounder and then to fail to apply them is not an acceptable
course of action.

The relative merits of alternative economic approaches are not evaluated
here. The points below may be useful, however, in assessing the wisdom of
hours reduction as against other measures generally:

1. Shortening of hours does not need pinpoint timing for full
effectiveness but is practicality and value diminish once a full-fledged
recession is in process. The workweek can best be reduced with no loss in
weekly pay while the economy is still comparatively prosperous, before
unemployment pressures have mounted to become the dominant economic
force. If the shorter hours tool is held in reserve too long and turned to
only after the full shock of recession or immense load of unemployment
arrives, its practicality and positive benefits will be severely
blunted. Shorter hours would likely come then largely in an undesirable
worksharing, cut-wage form force by overwhelming unemployment and would
not be adequate to the task of contributing substantial momentum to
employment upturn.

2. Advocacy of shorter hours does not mean rejection of other measures to
increase employment. The choice need not and should not be an either/or
proposition. Reduction of hours should be one of many steps applied to
control unemployment, with the size of the reduction determined by the
effectiveness of the overall program. If other measures prove effective in
providing needed jobs, hours reduction can of course proceed more
gradually.

3. Shorter hours are increasingly recognized by most workers and the
public generally as directly related to the unemployment problem. This is
not true to the same extent for other measures, such as government fiscal
or monetary policies. Because so many workers would be directly or
consciously involved in a general shortening of hours, there likely would
be a wide sense of participation and appreciation of the anti-unemployment
campaign, with accompanying psychological benefits for the economy.

4. Many of the collective agreement and government measures used to ease
unemployment effects are geared to helping the unemployed worker hunt for
a new job. These include private public retraining programs, relocation
aid, counseling, severance pay and approaches. A major objective of
shorter hours, on the other hand, is to reduce the need for layoffs and
thereby encourage retention of workers in the type of work and industry to
which they are already attached and in which they have already acquired
training.

5. There is rather wide recognition that rapid technological strides will
enable or force radically shorter hours at some point in the future,
perhaps not all distant. Reduction in typical hours of work in the present
period are necessary to aid in the economic and social transition to
increased reliance on technology in place of manpower.

(This was the first half of the fourth in a series of articles on the
reduction of working hours that ran in the AFL-CIO American Federationist
from August to November of 1962. The article went on to discuss the
government's role in reducing working time and the estimated employment
effects of shorter hours.)

The Government’s Role

The government could encourage bargaining to reduce hours, set an example by adjusting hours on government work and/or enact new workweek legislation. A positive policy would require specific announcement that the Administration would not discourage reductions in hours and would welcome this, at least in particular industries, as one of the variety of measures individual industries might use to bolster employment security.

Setting an example, in its role as an employer as it has done in the past. would require establishment of new reduced workweeks for employees to serve as an experiment and broad guide for private industry. It is worth noting that about a third of U.S. municipal governments already have fulltime workweek schedules shorter than 40 hours for their administrative and clerical employees.

New workweek legislation could of course take many forms. The principal approaches suggested have called for a reduction in the 40-hour standard established by the Fair Labor Standards Act, either immediately or in several steps spread over a period of time and either uniformly for all covered industries or through a special industry committee procedure functioning on an industry-by-industry basis. Each of these alternatives has some past legislative precedent.

Another major suggested legislative approach is a flexible workweek to be adjusted according to changes in the unemployment rate. A federal fund financed by a tax on employers could be established to help maintain weekly pay and national consumer purchasing power upon such reduction in hours. If the payments from the fund were scaled according to whether the employer hired more workers when he reduced hours, there would be an additional incentive for increased employment.

WHY SOME ECONOMISTS DISLIKE SHORTER WORKING TIME (part 2 of 7)

Recent eruptions of the lump-of-labor fallacy claim

In the wake of concern about stagnating employment growth in Europe, particularly in France, the lump-of-labor fallacy claim has been resurrected to justify rolling back reduced working time policies on the grounds that such policies impede economic growth and are ineffectual or even counterproductive in the fight against unemployment. For example, in a report to the French Ministry of Finance, Michel Camdessus, former managing director of the International Monetary Fund, attributed the original rationale for the French 35-hour workweek to the supposed belief in a fixed amount of work, “La logique de partage repose sur l’hypothèse qu’il existe, dans l’économie, une quantité d’emplois déterminée et fixe.”

A pair of articles appearing in the Journal of Economic Perspectives also attributed French working time policies to belief in the alleged fallacy. Gilles Saint-Paul claimed that the lump-of-labor fallacy was “repeatedly put forward” in the debate over working-time reduction and “has led to many misguided policies, such as pre-retirement to ‘make room’ for the young, or working time reduction." He further asserted that such policies are likely to have harmed employment growth in France and other European countries. Saint-Paul’s conclusion that working-time reduction has harmed employment was based on his selective embrace of one econometric study by Bruno Crépon and Francis Kramarz of the 1982 law that reduced the hours of work in France from 40 to 39 and his sweeping dismissal of “a large number of macroeconometric studies” on the grounds that those findings were based on “short-run Keynesian models that were unsuitable for dealing with these kinds of issues, given their very crude approach to wage formation and aggregate supply."

Olivier Blanchard was less judgmental regarding the impact of policies allegedly based on a lump of labor fallacy. He developed a tentative hypothesis that growth of productivity has been inhibited because firms have been under considerable pressure to avoid layoffs and plant closings. This pressure has come from government policies aimed at “job rich growth.” Such policies Blanchard described as “a direct descendant of the lump-of-labor fallacy.”

In a report whose approach was endorsed in a foreword by UK Prime Minister Tony Blair, Jaap de Koning et al. deplored the lump-of-labor fallacy, attributing this “profound error” to anyone who doubted that increasing the supply of labor is the sole effective way to reduce unemployment. Their analysis echoed an earlier claim by Tito Boeri et al. that pessimism about welfare-to-work policies was an expression of belief in a lump-of-labor fallacy. The Boeri report was presented jointly to the Council of European Premiers in 2000 by Blair and Italian premier Massimo D’Alema.

The authors of an OECD Policy Brief cited evidence from OECD countries "that would seem to bear out arguments that reductions in working time can increase employment and help to cure high unemployment." In spite of such evidence, however, they claimed that "this argument relies on the idea that there is a fixed volume of work which can be shared more or less broadly across the adult population – the so-called 'lump of labour fallacy'..."

In an article devoted to exorcising the demon of the lump-of-labor fallacy, Timothy Taylor cited the fallacy as the source of fears that US employment would continue to stagnate – as it had for the previous three years – and for “the recurrence of the true believers’ favorite fix: a shorter workweek or an earlier age of retirement.” Taylor concluded with a plea: “The appropriate mix of these labor policies is a matter for debate. But the lump-of-labor fallacy has been impeding and confusing the legitimate arguments about jobs for more than a century now, and it’s time to give it a rest.” Taylor’s concern to remove impediments and confusion from the debate is welcome, but it needs to be asked whether it is the lump-of-labor fallacy per se or dubious claims about the role of such an alleged fallacy that is primarily responsible for the confusion.

Part 3

FOUR HORSEMEN OF THE GROTESQUE NATIONAL PRODUCT

By request, here is a copy of the essay on the GDP Tom Walker presented Saturday at the BALLE conference in Vancouver. It is a draft and doesn't have footnotes and references, so please do not cite without the author's permission.

WHY SOME ECONOMISTS DISLIKE SHORTER WORKING TIME (part 1 of 7)

The regulation of working time has been a controversial topic since at least the second decade of the nineteenth century when the Ten Hours Movement was active in Great Britain. How the hours of work are determined in the absence of explicit regulation is also controversial, with neo-classical economists arguing that the individual supply of labor time is based on workers’ choices between income and leisure while Marxists and institutionalists maintain that political power and economic circumstances are decisive. Further complicating the debate, Chapman’s major theoretical contribution to the marginalist analysis of the hours of labor has largely been neglected by neo-classical economists in the post-World War II era, thus hindering a potentially fruitful rapprochement between the various positions.

The stakes in the controversy extend beyond the number of hours worked in a day, a week or a year. Ultimately, the hours of work and the method or methods by which they are determined crucially affect aggregate income and its distribution, employment, and social welfare. Given this strategic role with regard to income distribution and social justice issues, it is not surprising that polemics and demagoguery have played their part in shaping the debate over the hours of work and their determination. Bosch has characterized that debate as frequently resembling “quasi-religious exchanges of articles of faith between opponents and advocates.” In Capital, Marx ridiculed Nassau Senior’s 1836 contention that the recently passed Factory Act would be ruinous to industry because, “the whole net profit [from an 11 1/2 hour day] is derived from the last hour.” Conversely, in the 1890s, John Rae was motivated to refute the implausible pronouncement by eight-hour day advocate George Gunton that adoption of the system in the United States would have the “direct and immediate effect” of creating over three and a half times as many new jobs as there currently were unemployed.

Over the course of the twentieth century, a particular polemic became ensconced in the discourse of mainstream economics. That is the claim that policies aimed at creating employment through limiting the hours of work are based on an erroneous belief in a fixed amount of work. Economists call this supposedly widespread delusion the “lump-of-labor fallacy.” Those who make the fallacy claim routinely fail to document occurrence of the belief and there are grave inconsistencies in their various explanations of why reducing the hours of work cannot alleviate unemployment. Rote repetition of the fallacy claim is thus a distraction that obstructs constructive dialogue about the hours of work, their determination and the social, political and economic appropriateness of policy interventions.

Part 2