Economics Of Work Weeks

Moved here from FortyHourWeek

This has the effect of keeping more people employed -- This is a fallacy. There is not a single "lump of labour" to be divided among all workers, so that if one person does more work someone else has to do less (ie, be unemployed). If this were true, the USA, where people work more hours per year than in any other country bar Japan, would have the highest unemployment rate in the world, instead of the lowest bar Japan. [Currently, many countries, such as Brazil, Germany, Israel, the Netherlands, and Norway have a far lower unemployment rate than the USA.]

However in a country like Australia where unemployment runs at around 8% or higher (though currently lower), it is true that there is a limited supply of work available. If a company has 105 hours of work to do it is cheaper, because of the overtime rules, to employ three people to do the same work than two people.

I contend your argument is incorrect. Consider that if there were x hours/week of work to be divided amongst y available employees such that x/y >> 37.5h, there would be low unemployment with high overtime as (almost) everyone would be employed with a large chunk of work hours allocated to each person. This is not a totally false picture of reality either.

Consider that a low employment rate means that the pool of free employees is low. Consequently, if a growing company requires more work to be done, it has a difficult time scaling its head count to match. Consequently, it pushes more work onto its existing staff. -- SunirShah

This makes no sense. If unemployment is low, the cost of labor goes up, not down. The inelasticity of labour market prices (ie wages) chops this argument. Only crazy people will sell their labor for less when labor becomes scarce unless there is some other reward - options, equity, VP next year, closer to home, etc. -- DeanBurson It depends on why unemployment is low. Suppose for example that people are so desperate for work that they will take the low-paying jobs which would otherwise remain vacant. -- AndyPierce

Remember that the market for labor is not a perfectly competitive FreeMarket; since there are usually more employees seeking work than employers seeking workers, the employers have more bargaining power. (In the software industry, this may not be the case....) Also, when looking at a pool of potential employees, the employer has a hard time identifying which ones will be extremely productive and which ones will be a drag on the whole company(http://www.visa2003.com/employment.htm); therefore, the employer has an incentive to put off hiring people for as long as possible, and to keep salaries low for the workers who aren't provably indispensable. -- SethGordon

Let's say you have a company which pays an employee ten dollars and makes two dollars profit. If demand increases such that you can now sell one more unit at twelve dollars, you have a choice of hiring another employee (two more dollars for you), or pushing your current employee to work twice as much for the same pay (12 more dollars for you). Since you think it's rational to push, you push her. You're a happy company and she's a miserable employee. I start a company across the street and offer her eleven dollars to do her old job. I hire another employee to build the extra unit and pay him eleven dollars too (you're the one who said there's always another employee to hire). Now I'm making two dollars, which is exactly what you were making to start with, I have two employees making eleven dollars. You're out of business. -- DeanBurson

If labor markets were PerfectlyCompetitive, that would happen, but they're not. Raising the capital to start a new company, or changing a job, is a risky and time-consuming process, which allows existing employers to pay their workers less than the theoretically optimum wage. Card and Krueger's Myth and Measurement (Princeton University Press, 1997; ISBN 0691048231 ) discusses this in more depth, and provides some empirical evidence as well. The authors tested the effect of the minimum wage on employment in low-wage jobs, and discovered that, contrary to most economists' expectations, raising the minimum wage did not raise unemployment. (See also TransactionCosts.) -- SethGordon

See OptimumMarketWage

We calculate these risks all of the time. If I sell my car, do I accept the first offer, or do I wait for a better one? Calculating risk and time isn't really economics, it's life. Do I marry this girl, or wait for a better one :)? [Note -- see BeautyContestProblem.] I haven't read the book, it looks interesting. But I'm not arguing that cost of labor directly affects unemployment. In my little example, both wages and employment went up. If you raise wages though, who pays? In my model it was increased demand, I raised wages one dollar without raising the price of my product. Cheers. -- DeanBurson

Moved from WhyDoYouPermitThisToBeDoneToYou

Someone once told me that one third of world problems would be solved by working a FourDayWeek.

Care to elaborate? My guess would have been 20%

CategoryEconomics