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Government Mechanisms to Reduce Work Hours

The mechanism by which government might reduce work hours is provided in a law enacted during the Roosevelt administration, the Fair Labor Standards Act of 1938. This law requires that time-and-a-half overtime wages be paid to eligible workers when employers require an employee to work more than the “standard” number of hours in a work week, which currently is forty.

In the context of this law, there are several ways to reduce work hours:

(1) reduce the standard workweek from 40 hours to some lesser number,

(2) increase the overtime pay from time-and-a-half to a higher rate such as double time, and

(3) expand eligibility for overtime pay.

Additionally, it should be acknowledged that the time-and-a-half pay gives employees an incentive to seek or accept overtime work. In that case, a reasonable solution would be to redirect the extra income away from the employee to another beneficiary such as the government. Government could also, of course, enforce more effectively the laws already on the books.

A common question is what would happen to pay when working hours are reduced. The free market can take care of this arrangement. The counterintuitive solution is that pay will increase, certainly on an hourly basis but possibly on a weekly basis as well. If the free market sets levels of pay, supply and demand will be the governing factor. A reduction in average work hours will reduce the supply of labor because labor is the product of employment and average hours. (Employment increases increase labor supply, but employment will likely not rise faster than the proportionate reduction in hours.) At the same time, consumer demand will tend to increase as more people become employed or lose their fear of unemployment. Therefore, wage levels rise without the need of government regulation because of a combination of falling labor supply and rising consumer demand, which means a greater demand for labor.

The idea is for government to exert regulatory pressures upon employers to cut their work schedules, but not require it by law. The requirement of overtime pay, which involves an increased rate of pay, makes employers eager to avoid this extra cost. If they can change the mode of operations to get the work done by the same crew of workers, they will do it. If not, they may have to hire new people to fill the gap. In emergencies, however, employers may be forced to work people overtime and pay the extra cost. They need not fear further government sanction. The system of financial incentives allows some flexibility.

From the employee’s standpoint, the idea is to give individual workers more of a choice about their working hours. Presently, it is the employer who sets work schedules and employees, unless they are uniquely valuable to the firm, must adapt to those requirements. There are, of course, social pressures within business organizations to work long hours to demonstrate one’s dedication and eligibility for future promotions. The defect in the present system is, again, the perverse incentive that overtime pay creates for employees to seek and accept long hours. But, again, flexibility is important. If a worker truly needs or wants the extra income, there should be no discouragement of “moonlighting” or the practice of holding a second job.

The shorter workweek movement has traditionally sought to reduce hours because unemployment might be reduced as employers hired new people. This scheme works only in a closed economic system where supply and demand reach certain limits. In fact, we have an open system of labor. New labor is continually coming into the U.S. from outside. First, there is immigration of skilled and unskilled labor. Second, production is being outsourced to foreign countries. So long as this situation continues, wage levels will be depressed. Shorter work hours will be ineffective in such circumstances.

Because proposals to reduce work hours are such a red flag to employers, it would be counterproductive to seek to reduce hours in a single country alone. That would merely spur employers to move their operations elsewhere. Employers are continually arguing that such moves would impair national “competitiveness”. Even if the facts do not bear this out, the fact that employers believe it (or want us to believe it) becomes a self-fulfilling prophecy. Employers have the power to make shorter-workweek programs fail.

A Need to Go International

The situation requires that, if we want to exploit the advantage of shorter hours for employment in a closed economic system, that system needs to be worldwide. The U.S. government can and should take the lead in urging the community of nations to engage in hours reductions simultaneously, each according to its developmental needs.
With respect to enforcement, the condition of labor in producing goods for export to other countries depends on labor laws in the exporting country. But if that country does not act “responsibly”, then the importing country can create an incentive for improved conditions in that other country by imposing tariffs on the imported products. Their cost should equal or exceed the cost advantage achieved through the long hours. Such tariffs should be targeted to the individual country, indeed to the individual business producer. They should be flexible to encourage improvement in that area.

This proposed system of tariffs does not yet exist. It is discussed in somewhat greater detail in the final two articles listed on this website. There is yet no world government or international political authority powerful enough to establish shorter-workweek regulation on a worldwide basis, although the WTO has “teeth” in its rules that permit retaliatory tariffs under certain circumstances. But we need to move away from conflict among nations and see the issue as one involving government regulation of business. If multinational corporations have grown too large for national governments to control, then the regulation will have to be done by a coalition of nations, if not by an international government. The first step is for national governments to recognize their common employment and environmental problems and work together on solutions.

The United States of America remains influential in the world, despite recent diplomatic and political setbacks. If its government took the lead in proposing solutions to people’s needs instead of resisting solutions proposed by others, its efforts would surely be welcomed. That is why the main task is to change U.S. government policy first and then worry about international cooperation. There is a plan for accomplishing that difficult task.

 

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