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.
READER COMMENTS
Dylan
Apr 21 2022 at 11:31am
Why do you take at face value that employees would actually be working less? I know very few people that are putting in a 40 hour work week (or 32 hours even) despite what their contract might say or how long they sit in front of the computer. There’s a reason the quote from Office Space about 15 minutes of actual work a day resonates with many (white collar employees at least).
Pierre Lemieux
Apr 21 2022 at 11:50am
Dylan: Yes, that was my assumption. It would be the exceptional employee who would work more than otherwise just because a law allows him to work less. There would also be some legal risk for the employer if an employee came to work for a fifth day.
Dylan
Apr 21 2022 at 12:19pm
Pierre: I think you’re missing my point. For many jobs, there’s very little “production” going on during the 40 hours they’re supposed to be currently working now. Decreasing this to 32 hours a week won’t make much of a difference if employees are only putting in 10 hours a week of actual work now.
Don’t get me wrong, I think this is an incredibly bad law, particularly given the current labor market. I just object to the idea that the mandated work week and production are all that tightly correlated these days. I once negotiated a 20% nominal raise while reducing my days in the office from 5 to 4. I still produced the same hour or so of work a week, but I now only had to fill 4 days a week pretending to be busy instead of 5.
Pierre Lemieux
Apr 21 2022 at 3:21pm
Dylan: I just sent to your boss a link to your post, offering him to work one-half of my paid time instead of one-fourth for the same salary. More seriously, greedy corporations have an incentive to find out how much time their employees spend doing nothing productive–and evaluating correctly what amount of slack, i.e., no slave work, is required for maximum productivity.
Dylan
Apr 21 2022 at 7:51pm
Luckily, I left that job long ago, but it no doubt colored my outlook on the ability of employers to even know what good, productive work looks like. I mean, how do you assess how productive your middle manager corporate sustainability officer is anyway? In my experience, bosses use proxies like how busy a person seems, which poorly correlate to productivity.
I’m not exactly alone in this observation. David Graeber wrote a column about how meaningless jobs seemed to proliferate, and he had so many people write to him to tell him about how they did nothing at work and even if they did, no one looked at it anyway, that he turned it into a book.
Sandwichman
Apr 21 2022 at 5:26pm
Welcome to the nineteenth century, Pierre — the first half of the nineteenth century, that is. Experience with the ten-hour laws in Britain disproved economists expectations that a shorter work day would result in less output. See especially Thomas Brassey’s 1871 book, Work and Wages. At the beginning of the twentieth century, theory caught up with experience in the form of Sydney J. Chapman’s very highly regarded analysis, “Hours of Labour.” John R. Hicks refuted your objection about employers spontaneously adopting shorter hours in his 1932 book, The Theory of Wages.
If you want to assert something contrary, you should at least address Chapman’s and Hicks’s arguments and show why they are wrong. That is specifically what mainstream economists failed to do in the 1950s when they replaced the methodologically inconvenient canonical theory with the proposition that workers choose their hours of work based on their preferences for income or leisure. Actually, the replacement was a two-step process, the first step being a historical argument about workers in aggregate and the second simply assuming that step one could be modified to apply to individuals at any given point in time. See John Pencavel’s The Productivity of Working Hours for a recent account of these shenanigans.
Pierre Lemieux
Apr 22 2022 at 11:21am
Sandwichman: Here are a few questions: Wouldn’t it be more efficient and progressive to limit the workweek to one hour? Or should not our nice government instead establish a floor of 41 hours? Shouldn’t “we” impose whatever punishment (up to the death penalty) is necessary to enforce whatever “we” decide is the right number, thereby making sure that some disobedient individual does not work too much or too little?
andy
Apr 25 2022 at 5:01pm
The link to Pencavel in the abstract (it’s behind paywall) says: … The relationship is non-linear, below an hour’s threshold, output is proportional to hours. Above threshold, output RISES at a decreasing rate as hours increase.
That would imply that if the workers work less, they will produce less, wouldn’t it?
Jose Pablo
Apr 21 2022 at 7:18pm
“One standard objection is that employees who work less actually produce more”
If the California Legislature believe so, what they should do is running a “pilot” with some public employees. A well-designed pilot with control groups and everything.
If they get the results, they are expecting then make them public and available to every single private company. They should be rushing to get the benefits of the policy (they are greedy, remember?).
If they don’t get the expected results (in management being wrong is always a possibility), then … well, same thing, make the results public.
What they for sure are going to get with this measure is a clear “frontier effect”: companies with between 500 and, let’s say, 550 employees will all but disappear while companies around 490-500 employees will be vastly overrepresented.
It would not be difficult to get the right conclusions from these results. Even for politicians. You can bet they won’t (their answer to this will be, very likely, to extend the measure to companies over 400 employees)
Pierre Lemieux
Apr 22 2022 at 11:33am
Jose: Very good idea (provided the conceptors and authors of the study don’t work too much at it)! On the cutoff effect, I remember (but, caveat, I can’t find it right now) seeing something like this: in France, special obligations are imposed on companies with more than 49 employees, including a workers’ council; and there is a “strange” jump in the number of companies that have just below 50 employees and a discontinuity with those that have around 60 or so.
Jose Pablo
Apr 23 2022 at 9:10am
http://economics.mit.edu/files/12321
Garicano has done similar analysis for Spanish companies showing the same effect. The effect is equivalent to a tax on labor.
Pierre Lemieux
Apr 25 2022 at 11:15am
That’s it! Thanks for the link, Pablo.
Dylan
Apr 21 2022 at 7:40pm
Funnily enough, this just hit my inbox on the topic of lots of companies, and not just the ones in Silicon Valley, experimenting with this. One public company I interviewed with a couple of months ago has been having Friday’s off for over a year already. No reduction in pay.
Pierre Lemieux
Apr 25 2022 at 11:28am
Thanks for the links, Dylan. To the tongue-in-cheek last sentence (“Hey, it’s not the 4-hour workweek that Tim Ferris promised back in 2009. But it’s progress”), I would add that the following elaboration: Given constant productivity, any increase in the satisfaction of individual preferences (through markets, that is, through voluntary cooperation) is progress. If a four-hour workweek did not diminish anybody’s productivity but increased at least one person’s utility, it would be a Pareto improvement. Of course, a referendum or election) cannot determine that.
David Seltzer
Apr 25 2022 at 6:32pm
Pierre, Isn’t this minimum wage regulation in another form? To wit. 40 hours at $25 an hour is $1000. 32 hours translates to $31.25 an h0ur. Marginal productivity would have to equal $31.25 an hour. If not, those employed could well be replaced by robots and self checkout lanes at Walmart. Another argument for a contractarian society.
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