Mandated Work Hours: A Bad Idea
A California legislature idea would force large companies with more than 500 employees to reduce the work week to 32 hours or four days (before overtime) without a pay reduction (“California Considers the Four-Day Workweek,” Wall Street Journal, April 15, 2022). This is a bad idea from any viewpoint, except if the goal is to reduce the number of large corporations operating in California.
The basic economic problem is that if people produce less, they cannot consume more. The only way some Californians can produce less and consume as much is by consuming their capital (savings) or by forcing others (shareholders or taxpayers), in California or elsewhere, to subsidize them.
One standard objection is that employees who work less actually produce more. If that is true, we can count count on greedy corporations to identify those employees. And the greedier the corporations, the more incentives they have to do so. There is no reason to believe that politicians and bureaucrats can do better in these entrepreneurial calculations. The greedier the politicians and the bureaucrats (greedier for power and perks), the less it will work.
It is possible that greedy corporations have not yet discovered how to obtain from some employees the same productivity for less work and the same salary, thereby making those employees happier at a zero cost. We cannot object to firms and their consultants exploring such paths. But is another thing for politicians and bureaucrats to force it on all big-bad corporations.
The proposed scheme is equivalent to a tax on labor for large corporations. As a consequence, they would hire fewer people or pay them few hours (than they would otherwise do). A firm does not need a predetermined amount of labor known to some government bureaucrat or politician. The firm will hire labor until its marginal productivity is above salaries. Higher salaries decrease labor productivity and the firm’s demand for labor. An indication is that, after two decades of mandated 35-hour workweeks for most employees in all firms (but not in managerial positions), France still shows an unemployment rate double that in the USA.
There is no reason for allowing the state to discriminate against large corporations and their employees. More generally, there is no reason why the state should tax or subsidize either work or leisure in a society of free individuals. Everyone makes his own decision of where to work and when to play. Production is not a government fairy tale.