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The mechanics of cutting work hours and creating new jobs

by William McGaughey, Jr.


Misunderstandings

A strategy to boost employment in the United States in these difficult economic times would be to reduce hours of work. When I mention this possibility to some of my friends, their eyes glaze over. They see no connection between shorter work hours and new jobs. The only option that makes sense to people these days is for the government to spend borrowed money to create jobs. However, we are fast approaching the end of the line on this Keynesian, financial solution to the unemployment problem.

Few people today know that in 1933 the U.S. Senate passed a bill that would have created a five-day, thirty-hour workweek. This proposal was derailed by the incoming Roosevelt administration due to opposition from some Congressional staff members and other influential persons. Instead our nation went the route of deficit spending and, ultimately, a war-based economy. We can see now how that has worked out.

A century ago, the economics of shorter work hours was better understood. There were serious academic studies such as those done by University of Chicago economist Paul H. Douglas showing the beneficial effect of reduced hours. Visionary businessmen such as Henry Ford favored shorter hours for their effect on consumer demand. Organized labor was still pursuing this goal as a benefit to working people.

Today, however, a herd of dogmatic economists has persuaded the public that shorter hours will not create jobs and those who believe otherwise are guilty of embracing something called “the lump-of-labor fallacy”. There is no evidence that such a thing even exists. This alleged “fallacy” has never been demonstrated or proved.

The main political question today is how the U.S. economy will generate enough well-paying jobs to relieve our high unemployment. What, if anything, can the federal government do?

Democrats tend to think in terms of government creating jobs through countercyclical spending (except that the recession never seems to end). We should have more public works projects or create more government positions or use borrowed taxpayer money for programs to leverage spending and investment by others.

The problem with this approach is that we have run out of additional money to spend. The federal deficit and level of national debt are at historic highs; and Republicans have slammed the door on further government spending. Thank the Tea Party.

Republicans, on the other hand, argue that tax cuts are the answer. It's especially good to give tax cuts to the rich since they are the principal creators of new jobs. What evidence is there to support that assertion?

Rich people, with their tax savings, are not likely to go out and start new businesses. They are more likely to park their money in the stock, bond, or, perhaps, gold market. Even if they did invest in business equipment, it is likely to be in devices that help to improve business efficiency so that profits increase. Such improvements allow employers to lay off people whose labor is no longer needed. That leads to a loss of jobs rather than new hiring.

No sensible person having a stash of extra cash would start a new business if he did not believe that the market would support such an operation and allow him to earn profits. There needs to be an adequate base of consumer demand. Such a base is lacking in the current U.S. economy.

From that standpoint, it is more important to put money in the pockets of the lower- and middle-class people who would spend it for consumer products than in the hands of rich people who might invest it in new businesses. These rich people, or any people, would be foolish to invest in businesses unsupported by market demand. They would be throwing their investment money away.

What is the most efficient way to create jobs in times of recession? Germany has a mature industrial economy like ours. However, it has managed the current crisis much better. The German “Kurzarbeit” (short work) program encourages employers to cut the work week while allowing hourly wages to remain the same. It reimburses employees at 60% of lost wages when hours are reduced by 10 percent or more.

It is reported that this approach costs one seventieth as much as a job created through stimulus spending. Germany’s unemployment rate in October 2010 was 7.5%. It has come down substantially over the past five years.
The United States could likewise adopt a national “short work” program which would boost employment without costing too much money. This program would remain in effect so long as the recession lasts or unemployment stands at a certain level.

I would argue, however, that recessions are not the cause of our lingering unemployment. Rather this is the result of long-term displacement of labor. Worker productivity increased progressively and cumulatively over a period of years and there was no corresponding decline in work hours. In other words, due to the collapse of the labor movement, there was no organization consistently working to reduce hours and save jobs as there had been in the 19th century and early 20th century.

The only institution able to save jobs as labor productivity continues to improve is the federal government. We should think in terms of a permanent reduction in working hours, as took place in the early 20th century, rather than a reduction predicated on hard times. We need this hours adjustment to accompany the improvements in productivity if the economy is to stay in balance over a period of years.

Amend the Fair Labor Standards Act with respect to the workweek standard

We need to take another look at the shorter-workweek option. I advocate that a four-day, thirty-two hour workweek be put into effect as soon as possible to relieve the nation’s unemployment problem. How would this work?

The basic idea is that, if employers reduce the weekly hours that their employers normally work, the firm would be unable to sustain the level of production that the market demands. It could choose either to concede market share and forego profits or hire additional employees to make up for the lost production. If the latter, some individuals who are currently unemployed would find jobs.

How might employers be persuaded to reduce the hours of work required of their employees? The Fair Labor Standards Act, enacted in 1938, provides the mechanism. With respect to work hours, there are three key provisions:

First, the law sets a “standard” workweek. It is currently forty hours a week.

Second, the law requires employers to pay an overtime premium in the hours worked beyond the standard. For example, if the standard workweek is 40 hours and an employee has to work 46 hours in a particular week, the employer has to pay 50 percent more than the normal hourly wage (“time-and-a half”) for the six hours worked beyond 40 hours.

Third, there are rules that state which types of employees are covered by the law. Generally, “production” workers who are paid by the hour are covered by the Fair Labor Standards Act, while salaried employees who hold managerial and professional positions are “exempt” from the overtime-pay requirements.

In its simplest form, this is how working hours might be reduced: Legislation would be enacted and signed into law which would amend the Fair Labor Standards Act with respect to the standard workweek. In particular, it would change the standard from 40 hours in a week to 32 hours a week. That means that employers would have to pay overtime when their employees work more than 32 hours in a week.

Of course, the employer does not have to cut the work schedule to 32 hours a week but merely faces a financial penalty in failing to do so. If the employer continues to work his employees 40 hours a week, the law requires an increase in the hourly wage rate of 50 percent for the extra hours. If the employer instead hires new employees each working 32 hours a week to make up for the lost production, he would pay straight-time wages.

In most cases, one would assume, it would be cheaper to change the work schedule of all covered employees to 32 hours than to maintain a smaller roster of employees who were paid significantly more toward the end of their workweek. However, the law is flexible rather than mandatory. If, for instance, the employer faces a surge of demand in a particular period of time, he can always choose to pay overtime to his existing work force rather than hire temporary workers. In some cases, scheduling longer hours makes good financial sense - but not on a permanent basis.

The Fair Labor Standards Act says nothing about daily hours of work. An employer could require someone to work extremely long hours on particular days and still not have to pay overtime, so long as the weekly hours were below 32. However, at some point in the day an employee grows tired and performs less efficiently. The employer would have to take that possibility into account.

The 32-hour workweek was chosen as a standard in part because it encourages employers to cut one full day from the work schedule instead of cutting daily hours. That standard leads logically to four eight-hour days of work.

To cut a day of work from the work schedule makes sense in today’s world: It spares employees of the need to commute to work on the fifth day. If the day off were staggered evenly in the week among the work force, traffic congestion in urban areas might be reduced. Additionally, employers would have an extra day in the week to conduct personal business, which would reduce absenteeism and boost employee morale. Considering that today’s economy requires less manual labor than in previous times, physical fatigue is less a problem. A shorter work day is less urgent. That’s why cutting a full day from the work schedule is more desirable than shortening daily work schedules.

Proposed modification of the Fair Labor Standards Act with respect to the overtime premium

The Fair Labor Standards Act, like the Social Security Act, was intended to create jobs for unemployed Americans. Both were enacted during the Great Depression.

With respect to the first law, the provision for overtime pay was intended to be a disincentive to the employer in requiring employees to work longer hours in a week. It was not intended to be a positive incentive for the employee to work long hours. Unfortunately, the way the law is structured defeats its original purpose. Many workers want to work overtime because it means more pay for the same amount of time worked.

The trade-union movement was built upon the struggle to achieve a shorter work day. In the mid 19th century, workers demanded a 10-hour day. The May Day strike of 1886 sought an 8-hour day. Workers achieved the 8-hour day around the time of World War I. Organized labor continued to agitate for shorter work hours through the 1920s and into the Depression. But then something happened. The Fair Labor Standards Act was passed. After World War II, the unions gave, at best, lip service to the goal of reducing work time further.

Having abandoned their original mission, the unions have paid a price in terms of lost membership and political clout. They have instead become a campaign auxiliary to the Democratic Party. The idealism which once animated the labor movement has given way to the selfishness of incumbent job holders. As a result, there is no credible interest group fighting for reductions in work time. Both this community-wide goal and the labor movement itself have been subverted.

I think this is due to a fatal flaw in the Fair Labor Standards Act. When the authors of this law tried to discourage employers from scheduling long hours, they ought not have encouraged employees to seek those hours. There is a direct financial incentive for employees to seek overtime work because they are paid 50 percent more per hour than what they receive in their regular hours. We have a significant group of workers who want this extra pay for themselves more than they want to create jobs for other people; and their sentiment cannot be ignored by union leaders.

The overtime “hogs” may think they are getting a deal but it could be illusory. There is no guarantee that their rate of straight-time pay will be maintained. The employer could cut the wage rate and say: Don’t worry, I’ll give you plenty of overtime assignments so your weekly wage will be maintained. That arrangement hooks the employee into working long hours. During economic recessions, employers can cut out overtime work, achieving a huge reduction in payroll costs, and few will be in a position to complain.

The solution is to amend the Fair Labor Standards Act in yet another way. Instead of giving the extra half-time pay to the employee who works overtime, tax it away. Continue to make the employer pay a premium wage for hours worked beyond the standard, but do not give this premium wage to the employee. If the extra pay instead goes to the government, neither employer nor employee will see overtime work as beneficial. There will be an extra cost for the employer and nothing extra for the employee. He would instead be paid straight-time wages for hours worked in overtime. Government would reap the windfall.

The purpose is to make overtime work unpalatable to all parties concerned so that it goes away. The U.S. taxpayer would reap the reward, not the overtime-working employee. The main beneficiary, however, would be the the person presently unemployed who finds a job as working hours are, in fact, reduced.

Proposed modification of the Fair Labor Standards Act with respect to its coverage

Not all working Americans are covered by the Fair Labor Standards Act. Employers can work some types of people as long as they wish without incurring an obligation to pay a premium wage for hours worked beyond the standard. Section 13 of the Fair Labor Standards Act exempts: “(1) any employee employed in a bona fide executive, administrative or professional capacity.” This is the main loop hole. Other exempt categories include students, learners, and handicapped persons.

The Wall Street Journal once published an article about work conditions in certain “sheltered workshops”. While the workshop administrators were earning $40,000 or $50,000 a year (big money back in the 1970s) and fancy charity balls were being staged to promote “a worthy cause”, the handicapped employees themselves were being paid as little as ten cents an hour to do work that had a significant commercial value.

Abuses also occur in manufacturing sweatshops that employ immigrant labor. In this case, the employees may be covered by the Fair Labor Standards Act but they are ignorant of their rights or dare not complain.

The solution here would be to tighten the rules for exemption and also, of course, enforce existing law. It can be argued that the Fair Labor Standards Act should have nearly universal coverage. If workers are not presently paid by the hour, they could be. There are too many cases of workers “being promoted” into salaried positions where their hours are increased significantly but no overtime is paid. These so-called “management” employers sometimes do the same work as before.

Employers have been known to hire attorneys to find loopholes in the Fair Labor Standards Act that allow them to reclassify an employee from nonexempt to exempt status. They then rewrite the person’s job description using just the right language to make it appear that he was doing managerial work. Then they work this employee as many hours as they wish for a flat salary.

I fail to see why executive, managerial and professional workers, bona fide or otherwise, should not be covered by the Fair Labor Standards Act. Is it beneath their dignity to keep track of their hours and have them be paid accordingly?

Some of the worst labor abuses take place among the so-called managerial and professional workers. At one time, hospital interns routinely worked between 90 and 120 hours a week - sometimes 36 hours at a stretch - while being paid less than $15,000 a year. This was justified in terms of professional development. The interns endured this hazing process for a year for the sake of a future career. The quality of care delivered by the exhausted interns was, of course, put at risk.

Among white-collar “management” employees, it is often expected that the rising stars will be willing to work long hours. This is a badge of their commitment to the job. “Perceive what the corporation or professional firm demands,” wrote Andrew Greeley, a newspaper columnist. “”During the early years of your career, you’ve got to prove your absolutely heroic devotion to the company or the profession by working long hours every day and often far into the night. If you don’t bring a bulging brief case home with you, people begin to wonder about your ‘dedication’.”

Many or most of these people should be covered by the Fair Labor Standards Act. Whatever language in this law the labor-law attorneys have found to justify exemption should be eliminated. Perhaps the exemption for executive, managerial, and professional employees should be eliminated in its entirety.

Why not? If long hours of work are a necessity for certain positions and if both parties agree, the employer could set hourly pay at a level low enough to accommodate frequent overtime charges. Even top-level executives could be paid on this basis. The expected hours and level of straight-time pay are a package that could be individually determined to meet the firm’s requirements.

On the whole, I would argue that, if an employee cannot effectively control his own hours without being penalized for slack performance in showing signs of wanting time off, he should be covered by the Fair Labor Standards Act. Corporate CEOs and managing partners of professional firms, who do effectively control the terms of their own employment, might continue to be exempt. So would self-employed persons, farmers, sales representatives, and others whose work hours depend on the requirements of a business.

There should also be no penalty for “moonlighting” - holding a second or third job. Each job should stand on its own with respect to paying overtime for hours worked beyond the standard workweek.


The Fixed-Cost Obstacle

During World War II, employers started providing employee health insurance since wage-and-price controls limited their options with respect to wages. They could attract employees that way. Today, however, the coupling of employment and health insurance has created a deterrent for employers to hire new workers even if overtime costs are high. When the fixed cost of fringe benefits per employee enters the picture, the disincentive to schedule longer hours and incur the additional overtime costs weakens. There will be a point where it is cheaper to pay the overtime than take on a new person needing health insurance.

The same is true of private pensions. Depending on how the pension obligations are calculated, the additional cost per employee of providing a pension to a new hire could be a factor in deciding how much overtime to tolerate. The federal government could increase the rate of overtime pay from time-and-a-half to double-time if the financial disincentive is too weak. It could set the overtime rate at whatever level is needed to deter long-hours work.

Another way, however, is to decouple employment from the fixed cost of benefits. Social Security, for instance, decouples retirement income from employment at a particular firm. Portable pensions or personal retirement accounts such as 401(k)s do the same. The pension benefits and costs follow the person rather than the employer.

Health insurance is the 800-pound gorilla. Many employers have stopped offering this benefit or have increased the employee’s share of the cost. From the standpoint of employing new people, these are positive developments. (The developments are not positive, of course, if such benefits are simply taken away.) If health care were a personal expense like any other, then employers could make hiring decisions on the basis of incremental costs. A new person is more likely to be hired if he or she does not carry the hidden baggage of the employer’s having also to pay the medical expenses of the employee and the employee’s family.

Personally, I am in favor of a national health insurance program that provides health screening and preventive services in addition to a bare-bones schedule of treatment to all citizens free of charge or with a low co-pay. It is money well spent to detect health problems early. If patients then require more difficult or expensive treatment, they would be required to engage the services of private medical providers through private insurance companies.

A two-tiered health-care system, while drawing criticism as including “socialized medicine”, would be a more efficient alternative to “Obamacare” and other existing systems. It would also accelerate the decoupling of jobs from health-insurance costs.

The question of wages

Advocates of a shorter workweek have traditionally demanded shorter hours for the same pay. Proponents of corporate work-sharing envision reduced hours with a proportionate reduction in weekly pay. Employees are not keen to work four days a week if they must sustain a 20 percent reduction in weekly pay. The idea that shorter work hours and periodic pay are inversely related seems to have taken hold among the public.

What do I advocate with the shortening of work hours, the same pay as before or a reduction in pay proportionate to the reduced hours? Neither. I say: Let the labor market decide. We are talking about changing to a 4-day, 32-hour workweek in the entire economy. It would be impractical for government to impose any particular adjustment in wages as work hours are reduced. Wage-and-price controls would require a massive government bureaucracy and would destroy the needed flexibility in a free-market economy to direct resources to the best place.

In short, there should be no attempt whatsoever to legislate a level of wages after the Fair Labor Standards Act has been amended to encourage the move to a 4-day, 32-hour workweek. Employees need not worry, though.

Predictably, the cut in work hours would force employers to hire new workers to meet production requirements. The hiring of new workers would mean additional labor costs for the firm, assuming that weekly pay did not change for the firm’s existing work force. However, the same changes would meanwhile be taking place throughout the economy. If unemployed persons became employed, they would earn wages; and those wages would support increased purchasing power; and increased consumer demand would lead to greater sales and profits for all sorts of businesses. In the end, the effect on wages and labor costs could be a wash.

What economists today do not enough appreciate is the circularity of wages and business revenues. What goes out from the firm in the form of wages comes back to it in the form of sales revenue. If you want markets to grow, you need employed workers who are paid adequately and who have adequate leisure to use various consumer products. However, the government cannot dictate that adequate wages be paid. The labor market decides that.

Let’s say that the U.S. economy has switched to a 4-day, 32-hour workweek and that a certain employer is determined to pay his workers a weekly wage proportionate to hours - in other words, to cut wages by 20 percent. In that case, the labor market gives his present employees an incentive to jump ship to another firm.

Remember, the employer would be under pressure to maintain production at the same level as before by hiring new workers. Employers throughout the economy would be facing the same situation. An impending labor shortage would be at hand. Why, then, would an employer risk losing his experienced workers by forcing them to take a pay cut just as opportunities open up elsewhere? No, he would likely offer increased hourly wages as an incentive for them to stay with him even if there were no government pressure to do so.

Looking at this another way, we see that wage levels tend to increase as the supply of labor is reduced. The supply of labor is defined in terms of worker-hours. It is the number of people employed times their average hours over a period of time. If average hours are reduced, there would predictably be a somewhat smaller percentage increase in employment. Therefore, the supply of labor would be reduced.

A shrinking supply of labor combined with constant or rising demand for consumer products means that the price of labor would increase according to the Law of Supply and Demand. In abstract terms, that is why wage levels would tend to be maintained as the level of average working hours declines.

Critics will not be persuaded by abstract arguments. They want to see evidence. The problem here is that work hours have not been reduced in America for such a long time that we do not have recent evidence of their effect. For that we would have to go back in time or else look at the situation in foreign countries where work hours have more recently been changed.

A Bureau of Labor Statistics study of wages and hours in U.S. manufacturing, wholesale and retail trade, and other industries in May 1964 and May 1965 found: “For both wholesale and retail trade, and for almost all individual industries for which information is available, the longer hours workers are more heavily concentrated at the lower end of the earnings scale ... the proportion of employees receiving less than $1.00 or $1.25 an hour is higher among employees working 48 and more hours a week than it is for those working only 40 hours,. Similarly, a much higher proportion of low-wage than higher wage workers work 48 hours or more.”

Perhaps the definitive study of this question, as it relates to the U.S. economy, was that done by Professor Paul H. Douglas. His findings were published in the book, “Real Wages in the United States: 1890-1926”. Professor Douglas, later a U.S. Senator from Illinois, was updating the work of a 19th Century French economist, F.S. Simiand, who found, contrary to expectations, “a negative relationship between wages per hour and the number of hours worked” in the French coal-mining industry. Douglas wanted to know whether that effect still held true.

In three different years - 1890, 1914, and 1926 - Douglas measured the relationship between hours of work and hourly wages in seventeen different industries. He described the procedure: “The average hourly earnings in cents were taken for each of the industries for the three years ... and were correlated with the average number of hours constituting a full-time week’s work in the respective industries in each of these three years. The coefficients of correlation between the average money earnings per hour in the various industries in each of these years and the length of the standard working week are as follows:

year of data
r
1890
-.78
1914
-.80
1926
-.84

 

It is thus apparent that within a group of industries at any one time there is a high negative correlation between hourly earnings and hours of work. The industries with relatively high hourly earnings tend to be those with a relatively shorter week than the average, while the industries characterized by a relatively low hourly wage scale tend to be those with a longer than average working week. There seems also to have been a slight tendency for the strength of this negative relationship to increase with time, since r rose from -.78 in 1890 to -.80 in 1914 and -.84 in 1926.”

Keep in mind that these changes took place over a number of years as the labor market had a chance to adjust naturally to changes in the economy. This situation stands in contrast to the quick adjustments made during an economic recession when the sudden contraction of GDP forces employers to cut both hours and wages. In normal circumstances, real wage levels do increase as working hours follow a gradual downward trend. Lately, we have had neither condition in the United States.

We tend to belittle the “lazy” Europeans, especially the French, for their addiction to leisure. They typically have shorter workweeks than we and enjoy five or six weeks of annual vacation. Are the Europeans comparatively destitute because they work shorter hours? Hardly. These nations are paragons of prosperity compared with us, enjoying both healthy trade balances and higher per-capita GDP. No, the alleged tradeoff between income and leisure is a false one.

If the European example fails to persuade, then consider the People’s Republic of China. In May 1995, the People’s Congress decided to eliminate weekend work in state-owned and certain other sectors of the economy. China committed itself to a 5-day, 40-hour week. Did the Chinese economy then suffer an economic setback? Of course not. It was roughly at this time that China became a power house in the world economy. Income levels have risen dramatically in that nation in the years since Saturday work was eliminated.

One who understood the situation clearly was the automobile manufacturer, Henry Ford. In 1914, he unilaterally granted his employees an 8-hour day and a $5-a-day minimum wage. In 1926, his manufacturing enterprise adopted a 5-day, 40-hour week. When announcing the latter decision, Ford declared: “Now we know from our experience in changing from 6 to 5 days and back again that we can get at least as great production in 5 days as we can in 6, and we shall probably get a greater, for the pressure will bring better methods. A full week's wage for a short week's work will pay.”

The reason a shorter workweek would pay was that “because without it the country will not be able to absorb its production and stay prosperous. The harder we crowd business for time the more efficient it becomes. The more well-paid leisure workmen get the greater become their wants. These wants soon become needs. Well-managed business pays high wages and sells at low prices. Its workmen have the leisure to enjoy life and the wherewithal with which to finance that enjoyment.”

Henry Ford also observed that “it is the influence on consumption which makes the short day and the short week so necessary. The people who consume the bulk of goods are the people who make them. That is a fact we must never forget - that is the secret of our prosperity.” In other words, he recognized the ecological relationship between the wages paid to workers and consumer spending.

Henry Ford put his theories into practice. It is he, perhaps more than anyone else, who created the U.S. consumer mass market. Professional economists, however, claim to know better. We have followed their prescriptions since the early 1930s and look what they have produced: stagnant real wages and an end to the historic decline in working hours.

Economic output has been displaced from the production of valuable goods such as Henry Ford’s automobile to a variety of “necessary evils”: more crime and imprisonment, more foreign wars, more sickness and pills prescribed for patients, more gambling to restore hope to the masses, more consumer debt, more aggressive marketing of all kinds of products, more government bureaucracy and services that no one really wants. All these dubious “products” are included in GDP as an indication of our increased prosperity.

In other words, there may be a “free lunch” in not having to work to produce this kind of output. Just fail to produce it and people will miss little. I am proposing to exchange the fruits of meaningless production for leisure that gives people a chance to use more of their life’s time in their own way. More free time is a prime indicator of a free society. Don’t most red-blooded Americans want to be free?

The point here is that we should trust the free market to make the proper adjustment in wages and types of production if working hours are reduced. Right now, we have an oversupply of labor, leading to downward pressure upon wages. Unlike Henry Ford, employers on their own accord are not going to reduce work hours. Government will have to initiate the change to keep the economy in balance. We need it to create new jobs.

Government’s dirty little problem

There is one aspect of the situation that may throw the shorter-workweek option out the window. That is whether federal tax collections might drop in the event that working hours are reduced. The U.S. government desperately needs money to meet its debt obligations and bear the cost of foreign wars. No U.S. President wants a debt default or military defeat on his watch.

Due to the progressive nature of income-tax rates, it can be demonstrated that a more even distribution of work and income would threaten total tax collections. For example, let’s suppose that one person earns $100,000 a year by taking frequent overtime assignments while another person is unemployed and has no income. Now suppose that the 32-hour workweek comes into effect and the workload is shared evenly between these two people. Because of the half-time premium which is eliminated, the employer now has to pay only $90,000 to purchase the same quantity of work measured in time. Both persons earn $45,000 a year.

The federal income tax in 2008 for a single taxpayer for someone earning $100,000 (after the standard deduction and exemptions) was $21,971; for someone earning $45,000, $7,600. Two workers times $7,600 apiece equals $15,200 which is $6,771 less in tax collections than what would be collected from the one overtime worker and the non-earning unemployed person combined.

Because the tax rates are less progressive today than in previous times and because the Social Security payroll tax is a more significant part of federal tax collections, the loss of tax revenue to the federal government may be less severe than it once might have been. Still, the U.S. Treasury may see proposals to shorten work time as a threat to the nation’s fiscal health. To the extent that the Treasury has a veto over economic proposals, its expected opposition may be enough to render the shorter-workweek option politically unrealistic.

This means that federal policy makers may knowingly tolerate chronically high levels of unemployment to preserve the solvency and credit rating of the United States. Anything to maintain “economic growth” - keep the financial bubble growing! You and I may think that unnecessary security and incarceration are a waste of money, but the personnel involved in such activities pay taxes. That may be all the federal policy makers care about. The U.S. government must honor its debt obligations to avoid discrediting the institution itself.

Yet, if unemployment and social deterioration continue, government may come under pressure to take a hit to its institutional reputation to protect the people’s well being. It was, after all, not the current officeholders so much who put the nation on a course of unsustainable debt but previous administrations. Ponzi schemes eventually collapse under their own weight. At a certain point, even a Bernie Madoff will admit: the jig is up. We are not yet at that point.

The challenge of a global economy

The economic arguments which I have made here in support of shorter work hours assume a closed economic system such as those once found in national economies. The United States has the world’s largest national economy but it is no longer a closed system. We are part of a larger global economy. That means that changes to labor supply in the United States may not bring the adjustment in wages that would otherwise occur. The U.S. economy is porous with respect to labor and production. Because of this, the economic model that I have proposed in the preceding chapters may not work so well.

One problem is that shorter workweeks are anathema to the business community, especially to the financial interests that control business. If the U.S. government initiates a shorter workweek, it would tag our nation as having a “bad business climate.” Multinational business would be less inclined to invest in the United States. So, predictions of economic ruin if work hours were shortened might come to pass as a self-fulfilling prophecy.

The solution is to mount a campaign for work hours to be reduced simultaneously in all industrialized countries. Then multinational business could not target any particular one. All nations would have equally bad business climates. In fact, all would have improved opportunities for full employment and a more widely shared prosperity.

The process of industrialization means that technological processes and machines augment human labor in the production of goods and services, helping to bring down per-unit costs. As labor productivity improves, all nations undergo labor displacement. That means that there tends to be over time an increasing pool of unemployed or underemployed workers. There is a pool of college graduates who cannot find suitable jobs. That is as true in China and Europe as in the United States.

Since all industrialized nations are experiencing the same kind of economic and social problems, there is an incentive for those nations to cooperate in solving them. The reduced work hours might be initiated by national governments, but national governments could agree on what level of reduction is appropriate in each case in the global economy. For industrially advanced nations such as the United States, a deeper reduction is needed than in nations at an earlier developmental stage. The point is, however, that all nations need to cut work hours to one extent or another to stabilize employment and conserve natural resources. Mutually tolerable tariffs would be the enforcement mechanism.

I can foresee that our nation’s and the world’s trade policy would shift from adherence to free trade to a model of trade which respects human and ecological needs. I can also foresee that trade disputes and enforcement would cease to be among nations but would be between the international political community and particular business firms. Tariffs could be used as a tool to force businesses that export products to other nations to raise wages, reduce working hours, and follow environmentally sound practices. There could be flexible tariffs based on the changing behavior of each firm.

We Americans are no longer a supreme superpower but a nation in decline due to our government’s reckless tendency to borrow and spend and a far-flung military empire that drains our national treasure. Our more hopeful future depends on cooperation between national governments, with the assistance of international agencies, to promote a common good throughout the world.

Conclusions

Americans now would be wise to return to economic policies that were in effect when we became prosperous in the 19th and early 20th century and to discount the opinions of today’s experts in the universities, the media, and think tanks who know not of what they speak. The essence of a sound economy is balance - balanced trade and a fair monetary exchange between persons having different talents to contribute to our material well being.

Since machines have now entered the equation, we need to reduce working hours to preserve whatever opportunity remains for human labor to be exercised and rewarded with a wage. We also need to begin cultivating a society of leisure to maintain and increase personal freedom.

Bear in mind that a four-day, thirty-two hour workweek is something that Congress and the President can achieve through federal legislation alone. How much debt and continued intractable unemployment will it take before they open their eyes to that new possibility?

The forty-hour week was introduced in stages after the Fair Labor Standards Act was enacted in 1938. It became fully effective in 1940. I do not recommend this approach with respect to the thirty-two hour week. We need to “shock” employers into hiring workers now.

The U.S. business community is sitting on trillions of dollars of cash but is afraid to hire new people because of weak consumer demand. If the federal government made a bold move in this area, the fear of a sudden labor shortage would stimulate new hiring.

Even so, to relieve fears of the unknown - it has been seventy years since we tried anything like this - I would propose that the thirty-two hour week be conditioned upon high unemployment. So long as the unemployment rate (now more than 9 percent) remains above 6 percent, the national workweek should remain at 32 hours a week. If it drops below 6 percent, Congress would automatically reevaluate the situation. We could then go back to a 40-hour standard workweek if such a decision is made.

I believe it possible, however, that Americans would want to continue the shorter hours because they would then have seen its beneficial effect on both their livelihoods and mode of living.

To cushion the transition, the federal government might also rebate the overtime premium that it has collected back to the employer for a period of up to two years provided that the money is used to hire additional employees or to supplement the reduced weekly wages of existing employees as hours come down to thirty-two.

Employers might choose to schedule a certain amount of overtime work and pay the premium wage knowing that this money will come back to them next month. After two years, however, the subsidy would end. By then, the economy would have expanded as unemployment is reduced and everyone would have more money.

From an economic standpoint, we need a permanent, irreversible change in the schedule of working hours to offset many decades of productivity increase. Politically, we need what is possible to get signed into law.

 

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