Working time reduction for income redistribution and nothing more

I like Timon’s provocative monthly proposals very much! Not necessarily because I agree with them (I don’t) but they are always inspiring.

Timon is arguing that a reduction in individual working time would on the one hand increase total employment and at the same time increase the marginal product of labor and hence wages. So my first question would be: Why not restrict individual working time radically, let’s say to one hour per day. According to Timon’s logic that should radically increase employment and wages. Something must be wrong here.

I don’t know why Timon thinks cutting individual working time increases the marginal product of labor. I thought that the MPL depends on total hours worked not on who works them. It is not clear to me why the MPL should rise if you have 8 people working 35 hours instead of 7 people working 40 hours per week.

Moreover, if it were true that dividing working time among more people would increase productivity, why isn’t it already done? Surely profit-seeking employers wouldn’t miss out on the opportunity of getting more output with the same total work hours.

If the working-time reduction didn’t raise productivity, there wouldn’t be any effect on total employment when measured in hours worked. If MPL stays the same, a firm who used to employ 7 people for 40 hours now hires one more when individual working-time is cut to 35. But total hours worked will stay at 280. Only if the marginal product is raised will the firm increase its demand for work hours.

You might say that what counts from a welfare perspective is the number of people employed rather than the number of hours they work. But I doubt it. If there is no effect on MPL and hence on wages, going from 40 hours per week to 35 results in fewer unemployed workers, which increases the income of those hitherto unemployed, but it also results in lower income for all others. Aggregate income wouldn’t change since total hours worked wouldn’t change. What happens is a mere redistribution from those currently working to those currently unemployed.

Timon goes on to say that “less loaded workers are healthier and more likely to invest in their training and education.” Well, that may be right given the same income. But the workers whose working time is cut, will have lower income. So they will have less money to spend on health care and education.

In short, I doubt that individual working-time reduction would increase productivity. If it doesn’t increase productivity, it will raise the number of people employed, but not the number of hours worked. So its only effect is income redistribution within the working class. Is that the kind of redistribution Timon wants?

7 thoughts on “Working time reduction for income redistribution and nothing more

  1. I’m not sure reductio ad absurdum arguments are of much use in economics. I could very well imagine a marginal productivity curve per worker that rises, at some time plateaus and then starts falling. So the main question would seem to be whether this “peak in productivity” is reached before or after 40 hours/week. I have no idea, but it’s not unreasonable to assume that for the average person it’s more likely before than after.

    In the end, isn’t it all just a matter of units? If MPL in your entire economy is downward-sloping due to diminishing returns holding all other inputs constant, why would it be strange if the MPL of a single employee (or, if you will, your Robinson Crusoe economy with just one worker) were downward-sloping as well?

    Why it’s not already done can have many answers, including the possibility that hiring and firing costs as well as agency costs might make it rational for companies to have less workers working more hours, even though this makes them less productive. Simple path dependency might play a role as well.

    Also, if we assume decreasing marginal utility of income, even though we are only “redistributing” from working people to formerly unemployed people, total welfare would still increase. And even if income linearly decreased with the amount of hours worked, the “total resources” at the disposal of the workers working less is hardly limited to income.

    PS: Love the logo!

  2. I don’t think your arguments work.
    Even if there is sort of an inverted U-shaped MPL curve for each worker, that doesn’t mean we should restrict individual working time to the peak-level. The efficient thing to do is equating the marginal product with the marginal disutility of labor. As long as an additional hour of work produces more output than what the worker loses in terms of utility, that hour should be worked. You have to give me a good reason why the government should prevent people who are prepared to work 40 hours from being employed by firms who are prepared to hire them for 40h.

    As far as hiring/firing costs are concerned, you are probably right that they will lead firms to hire fewer worker for longer hours. It may be less costly to employ 7 people for 40h than 8 for 35. But if that’s the case, restricting individual working time must reduce employment because it increases the costs of labor.

    • The MPL = Disutility of working as benchmark that determines the efficient amount of hours worked is, of course, correct, and will always be, but the whole topic is set in a world where we assume to be having considerable levels of unemployment that causes high amounts of resources to be wasted as well. So even if an individual worker might be “robbed” of the opportunity to offer his efficient amount of work, it might still make sense to do it. Additionally, 40 is as arbitrary a number as 35 if you ask me, so your argument applies to both figures. It’s not a first-best world we’re living in, particularly not if you’re living in Spain.

      What does Timon think of your response?

      • So yes, unemployment exists (duh!). But do you really think we can solve the unemployment problem by forcing some people to work fewer hours so that other people can work more hours? We reduce unemployment by a) creating more demand and/or b) freeing the labor market from inefficient regulation. Forcibly reducing individual working time doesn’t seem like a very good tool for achieving either a) or b).

        And yes, my argument applies to 40h as well as to 30h. In fact, I find it diffucult to see why the government should regulate working hours at all. Maybe Timon can help me out 🙂

  3. In my point of view, the argument that lowering weekly working hours will decrease unemployment depends on a very artificial, although commonly used assumption: homogeneous or homogenizeable labour. You cannot consistently talk about theoretical concepts like the (one and only) MPL if there are as many different levels of qualification as we observe in real world economies. So considering u-shaped MPL curves corresponding to different levels of human capital, peaks are certainly not equal for all professions. Empirically, most qualified employees tend to work the most and thus cutting their hours reduces efficiency and welfare on the one hand. On the other hand, less qualified works might indeed have a higher MPL after a reduction of their hours, but their total income will be lower, except in the case of a unrealistic increase of the hourly wage. Given the lower income, they might easily get into troubles meeting their consumption plans (fix costs, family, etc.). I do not see positive welfare effects in this case either.
    Another assumption implicitly used is that firms are perfectly able to get replacements, which does not hold with heterogeneous labour. In Austria, persistent unemployment is primarily a phenomenon of people with low or wrong qualifications. It will be hard to find an unemployed technician and companies will not be able to hire workers with certain qualifications.
    There are probably better ways to deal with the issues of working hours and unemployment, for instance we could discuss the necessity of income tax benefits for working overtime, but I seriously doubt that a general reduction of working hours will do the job.

  4. Max wrote: “It is not clear to me why the MPL should rise if you have 8 people working 35 hours instead of 7 people working 40 hours per week.” … On the one hand because some other scientists (outside neoclassical models) say so 🙂 On the other hand because it seems very plausible to me: Or do you really claim that in your seventh working hour you are as concentrated and effective as in your third one (ceteris paribus)?

    Wolfgang wrote: “most qualified employees tend to work the most” … And still, studies show that their productivity also decrease rapidly after a certain amount of working time (some even say 6 per day). Btw: in the younger past, there were some well educated bank managers who worked really hard and did not really increase the welfare of the economy 😉

    Max wrote: “Surely profit-seeking employers wouldn’t miss out on the opportunity of getting more output with the same total work hours.” … However, firms do not maximize output but profits. Roughly spoken we have to focus the difference between average productivity and wage. The latter is negotiated. Negotiation power of workers increases when unemployment decreases. Therefore, if the expected rise of future wage exceeds the rise in average productivity, profit-maximizing firms would rather stick to the less productive status quo.

    • Timon, it was you – not me – who chose to present the argument in a neoclassical framework, talking about marginal products and all that. So I find it a bit strange that you are now referring to some “real scientists” outside the neoclassical mainstream who support your purely neoclassical point.
      Yes, my 8th hour of work is probably less productive than my 7th. But my 8th hour is not necessarily the marginal hour. The marginal hour is the one for which the employer is just indifferent between hiring and not hiring it. It is the least productive hour of the least productive employee. And restricting everyone to work at most 7 hours a day does not mean that the marginal hour becomes more productive. It just means that the marginal hour will be worked by someone else.
      I don’t buy your second argument. What you seem to be saying is this: Firms do not cut their employee’s working time voluntarily, even if it would increase productivity, because then they would hire more workers, which reduces unemployment, which may lead to higher wage demands from labor unions and hence lower profits. I think you are mixing up the collective interest of firms with the private interest of the individual firm. I doubt that any individual firm (not even the giant multinationals) considers the effect of their hiring decisions on the aggregate unemployment rate or the next wage negotiation, because this effect is tiny.
      So yes, the fact that we don’t see firms voluntarily restricting working time to 7 hours a day is evidence against your assumption that such a reduction would bring significant productivity gains.

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