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The Economic Effect of Shorter Working Hours

Effect on Wages

1. Professor Paul Douglas, later U.S. Senator from Illinois, studied the relationship between wages and working hours in the United States between 1890 and 1926. He found that the coefficient of correlation between changes in hours and in wages for industry as a whole was -.67 for 1926 relative to 1890. Douglas explained: “This indicates a relatively high negative correlation between changes in hourly wages and standard hours of work. When the gain in hourly wages was less than the average, there was a tendency for the hours to fall by less than the average, and when the gain in wages was greater than the average the tendency was for the fall in hours to be greater.”

(From Real Wages in the United States: 1890 - 1926” by Paul Douglas. Douglas’ study was updated, and its results confirmed in an unpublished Ph.D. thesis by T.A. Finegan at the University of Chicago in 1960.)

2. The International Labor Office commissioned a study of work hours by Archibald A. Evans, which was published in 1975. Mr. Evans summarized developments in the industrialized economies following World War II:

“Not only was there this great increase in total output, but also a very substantial increase in productivity, which occurred concurrently with a substantial reduction in actual hours of work and an extension of holidays with pay ... As a result of these developments and once the period of postwar reconstruction was over, reduction of hours became a live issue again in those countries where the number was still above 45 a week. It soon became increasingly clear that it was possible to arrange for a shorter working week - perhaps also for longer holidays with pay - without reducing real earnings; these social benefits could be obtained at the cost of no more than a possible slowing down of the rate of growth in real incomes.

“In these circumstances, there was no longer any question of reducing real incomes when hours of work were reduced. Almost without exception, reductions in hours of work in this period were accompanied by any rate the maintenance of real earnings. In practice, the outcome of many collective negotiations provided at the same time both for a shorter working week, with perhaps also an extension of holidays with pay and for an increase in weekly earnings.”

(From Hours of Work in Industrialised Countries, by Archibald A. Evans, p. 13, published by I.L.O., 1975)

Effect on Employment

3. A study was made of work hours in West Germany at the Institut fur Arbeitsmarkt- und Berufsforschung. This study reported that between 1973 and 1979 average weekly work hours were reduced by 1.3 hours, or 3.0%. The gross effect of this change was to create 480,000 jobs. The net effect (taking into consideration increased productivity and a reduced demand for labor because of higher wages) was to create 240,000 jobs, or 1.0% of the total number of persons employed. The study determined that the number of registered unemployed workers was 160,000 less than what it would have been because of the reduced work hours.

(From “Will a Shorter Workweek Help to Reduce unemployment - A Critical Assessment of Simulations and Studies from Several OECD Countries by Peter Anselm Gorres at the University of Munich in May 1981)

4. The Wall Street Journal reported on July 15, 1976: “Mr. Bluestone of the UAW’s GM department says that when the union won relief time - paid time off each day - in 1964, the industry had to hire some 9,000 extra workers so that work could proceed while men took their breaks.” (The auto companies acknowledged that the relief-time provisions did prompt new hiring but said they never calculated the amount.)

5. “The Meisel Photochrome Corporation, in Atlanta ... switched its plant from a standard five-day week to seven days - two shifts of 3 1/2 days each. Employes work 36 hours, but get paid for 40 if their attendance is perfect. Even though total labor costs are higher because 29 new employes had to be hired, Meisel Vice President Tom W. Melder says: ‘Our labor costs are actually less per worker. Overtime is practically nil. Sales have increased 25 percent. Job recruiting is painless.”

(U.S. News & World Report, March 8, 1971)

6. “In France, the sample inquiry (referred to above) among those firms which reduced hours of work in 1968-69 on the basis of industry level agreements showed that 48 percent of them took on additional workers, 38 percent installed new plant, and 27 percent introduced extended shift work.”

(Hours of Work in Industrialised Countries, ILO, p. 32)


Effect on Foreign Competition

7. The ILO study by Archibald A. Evans comments: “International competition has also been constantly advanced as an argument against reducing hours of work in one country if competing countries did not carry through a similar reduction at more or less the same time ... In practice, it would appear that the dangers of increased competition, though they are certainly real up to a point, have been overrated. Costs in the country reducing hours of work are not likely to be proportionately increased and there are often many other factors of greater importance affecting competition, including levels of productivity, the existence or absence of tariffs and other obstacles to international trade, marketing difficulties and exchange rate fluctuations. Reductions of working h ours have also tended to follow similar trends in large groups of industrial countries, even if some among them were somewhat ahead of or behind others.”

8. The Wall Street Journal reported on January 18, 1973: “The Japanese five-day week would seem like good news for U.S. companies battling tough Japanese competition. After all, a shorter workweek should mean less production. It should - but it doesn’t. For the Japanese are working harder than ever, and companies that have cut the workweek say that, if anything, production is rising ... One reason Japan succeeds in world business is that it works hard, analysts say. But how hard it works seems to have little to do with how long it works. Average weekly working hours in Japan have been falling steadily for years. Employes were at the job 45.8 hours a week in 1967; by the end of 1971, this had decreased to 42.5 hours ... ‘And in just that period, productivity has been rising, wages have been rising, and they’re still selling to us like mad,’ the U.S. labor economist says.”

9. The National Congress of the People’s Republic of China passed a law in 1995 that for most employees the workweek would be reduced from 48 to 40 hours per week. This may have been done to improve China’s human-rights image. Meanwhile, the standard workweek in the United States remained fixed at 40 hours. In fact, the workweek for many Americans became longer during that time. The effect was not that lengthening work hours improved U.S. competitiveness vis-a-vis China but quite the opposite. China achieved large trade surpluses with the United States in the period after its workweek was reduced.

Effect on Productivity

10. An ILO study by Archibald A. Evans reports on page 78: “In the U.S.S.R. while the shorter working week was being introduced during the period between 1958 and 1960, productivity rose by 6 per cent in 1958, 7 per cent in 1959, and 5 per cent in 1960. It was estimated that only 1 per cent out of the 11 per cent overall reduction in hours of work had to be made good by increasing the work force, while the remaining 10 per cent was covered by improved organizational and technical planning.”

11. “Investigations were carried out in the Federal Republic of Germany ... as to how far the presumed loss of output proportionate to the reduction in hours could be offset through increased industrial capacity for work. The conclusion was that 65% of the proportionate loss of output could be recovered when hours were reduced from 10 to 9 a day, 45% in the case of a reduction from 9 to 8 a day, and 36% for a drop from 8 to 7 hours a day.”

(Investigation at the Max Planck Institute in Dortmund, Germany. Originally reported in an article by M. Rustant in Analyse et prevision, November 3, 1970, p. 548)

12. “In France, the Manpower Commission of the Fifth Plan estimated that a 1 per cent in weekly hours of work would lead to an average fall in production by 0.6 per cent.”

(Also noted in Rustant article, p. 548)

13. In 1973, a nationwide coal miners’ strike in Great Britain forced the government to impose an emergency 3-day workweek upon the nation’s economy. The curtailed work schedule lasted for a period of three to four months. When the crisis had ended, economists were startled to learn that industrial production had dropped by only 6%. Improved productivity, combined with a drop in absenteeism, had made up the difference in lost production from the shorter hours.

(From Awake, November 8, 1974, originally noted in Vision)

14. The negotiating exhibit for shorter working hours of the Australian Council of Trade Unions gives this example of improved efficiency: “A dramatic example is provided by the Melbourne firm Trico Pty. Ltd. The firm employs 204 people who work a 35 hour/ 4 day week. Since the introduction of the 4 day week the company has found that costs have not increased. Costs are saved by not running the plant on the 5th day. Additionally, absenteeism h as dropped from 13.2% to 2.1%.”


Effect on Prices

15. The Christian Science Monitor reported on August 23, 1927: “It is interesting to note that the official organ of the steel industry (Iron Trade Review) calls attention to the fact that there has been a steady decrease in the price of iron and steel ever since the change in the hours of labor went into effect. It declares that steel producers ... view the transition from a longer work day as a piece of constructive work. No reduction in wages or daily pay rolls followed this change, but a larger measure of production per man has been apparent.”

Effect on Energy Consumption

16. A study by J.C. Denton at the National Center for Energy Management and Power stated: “A four-day week yields a gasoline savings for commuting of over 20% ... Savings in input energy at the electric utility range from four to ten percent. Space conditioning savings range up to 25% Lighting savings range up to 7%. The four-day week pattern gives more of the energy savings directly to the participating firm than any other alternative pattern.”

17. A study by MATHTECH Inc. in 1976 projected that the nation might save 442 trillion BTU’s of energy per year by 1990 from converting to a 4-day workweek.

18. Fourteen Minnesota school districts were given permission by the state Department of education to operate on 4-day workweeks starting in the fall. The Ely school district expected to save $132,000 in fuel, transportation, and labor costs.”

(St. Paul Pioneer Press, May 4, 1982)

 

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