Reduced Working Hours as a Socio-Economic Investment

by Michael Schwindinger

[This blog article is translated from the German on the Internet, http://blog.arbeit-wirtschaft.at.]



Statistics Austria recently published a special study on the theme “Employment as a Health Risk.” 80% of all gainfully employed persons were exposed to physical or mental health risks through their work. Working overtime hours aggravated problems. Therefore the strained occupational group of doctors is now negotiating over something that is often demanded: shorter working hours. The killing-argument that is mostly encountered is cost explosion, cannot be financed, end of discussion. To bend this narrowed perspective, I’d like to dredge up an old article that may help us think of the supposed cost-trap as a future investment.



OPTIMAL WORKING HOURS



In 1909, Sidney Chapman, chief economic advisor of the British government from 1927 to 1932, published a study titled “Hours of Labor” in the Economics Journal. Decades later neoclassicists like Alfred Marshall and John Hicks described this paper as incontestable state of the art.



Chapman concentrates on the economic effects of changes in working hours. He begins his analysis with evidence that past reductions of working hours even led to increases and not output reductions in British industry. From this finding, he asked whether the effective channel of the “free market” automatically produces “optimal working hours” or whether improvements could be realized through extreme interventions (of the legislature or unions).



MONEY PREFERENCES AND SHORT-SIGHTEDNESS



To this end, Chapman examined both sides of the labor market. For workers, the travail of the work to be performed and the value of free time are factors that play a role for desirable working hours. These factors exist alongside earned income. Chapman assumed people underestimate the long-term effects of overly long work on their health and therefore prefer higher wages in the short-term to shorter working hours. The freedom of decision strongly depends on the amount of the wage. That this short-term money preference hides long-term health risks goes without saying.



For businesspersons, costs, output and productivity are crucial. The higher the number of daily working hours, the lower the productivity per hour. This is explained by exhaustion, lack of concentration and excesses causing sickness. Obviously the full extent of health risks does not immediately make a difference. In the short-term, output can be increased through longer working hours but only at the expense of long-term productivity losses. Conversely, an improvement of productivity does not appear at once with shorter working hours. Rearrangement of the daily work routine permanently improves efficiency.



Reduced working hours (with the same monthly earnings) is like an investment in the productivity of the workforce that is first gradually paid off or amortized. There will be a need for reduced working hours as long as the specialization and intensification of work increase, Chapman says. Why are potentially lucrative investments usually not made? Businesspersons cannot be certain whether the competition will later woo away the very productive and well-rested workers for minimal financial incentives, Chapman argues.



ADAPTATION TO THE MAINSTREAM



Before I come to the political conclusions from Chapman’s analysis, let me say a word about the remarkable career of this article. For decades, this study was treated as a standard argument on the working hours theme among neoclassical economists and hardly ever seriously questioned. Then the statement that a division of optimal working hours leads to productivity losses moved into the center. This agrees with Chapman’s analysis. The crucial adaptation occurred when the theoretical “optimal working hours” was simply equated with actual working hours. Consequently any change had to appear as inefficient. The economic mainstream obviously persists up to today in this confusion of abstraction and real value. In any case, Chapman’s incontestable study disappeared.



REDUCED WORKING HOURS AS FUTURE INVESTMENT



For working hours, Chapman identified market failure as that (singular) situation that legitimates political interventions according to the current mainstream economic theory.



The “free market” systematically produces sub-optimal or overly long working hours that damage individuals, the economy and society generally in the long-term. “These reasons are short-sightedness or fear of incurring an expense the fruits of which other employers might reap” (p. 367). Chapman urged support of the union movement for shorter working hours – based on a neoclassical economic argumentation. The cost-question can now be turned around on the background of this short-sightedness of the “free market” and the health impairments on the job. From a longer-term perspective, overly long working hours represent a cost-trap while reduced working hours becomes a socio-economic future investment.