Is the number of hours worked fixed or not? The theory according to which reductions in working hours must be followed by increases in employment is so simple that it seems to be true by definition. But to produce the desired effects, some preliminary assumptions need to be verified.
At the basis of the theory is the assumption that the number of hours worked in the market is fixed and that therefore an initial reduction in them automatically leads to a greater demand for them, which can be satisfied with new hires. In the market, however, nothing can be considered fixed: everything is created and everything is transformed.
An example of the dynamism of the labor market is the relationship, perhaps counter-intuitive, that exists between the labor force - how many people participate in the market - and unemployment: the latter is lower precisely in those countries where the number of people employed and job seekers, out of the total population, is higher.
Figure 1
Source: P. Cahuc, S. Carcillo, A. Zylberberg, Labor economics on OECD data.
For the relationship between working hours and unemployment, what are the aspects to take into account before proposing hasty solutions? The reduction in working hours has been a process that has been underway for decades, while the trend in unemployment seems to respond to mechanisms primarily linked to the economic cycle.
Table 1 – Average number of weekly hours worked
Sources: Based on Maddison (1995) and OECD data
Figure 2
Source: Eurostat
A first implicit assumption of the proponents of the mechanism lies in the fact that people in a state of unemployment are perfectly capable of replacing those employed whose hours are reduced. This may be true – above all in a moment of crisis when the supply of unemployed is particularly wide – but it must in any case be considered that the group of jobless people can have – and on average has – structurally different characteristics compared to the busy group of people (skills, education, experience) and is not a perfect substitute for it.
Furthermore, it must be remembered that the replacement of labor can also take place with new capital: a reduction in working hours could thus lead to new investments in capital rather than new hires.
Effects on wages and productivity
The second aspect to consider concerns the trend of wages and labor costs. In fact, it is legitimate to expect that wages - and therefore the cost of labor - will adapt to a reduction in working hours, with employment levels that could therefore remain unchanged. The decrease in hours worked can in fact lead to an increase in labor costs both through direct contractual mechanisms, for which a reduction in hours must be followed by an income adjustment, and through indirect mechanisms. Among these: (i) the persistence of fixed costs, independent of the number of hours worked; (ii) the use of overtime hours, which are more expensive; (iii) investments in new capital to cope with the reduced availability of manpower. Empirical studies have shown that for a reduction of one working hour per week, the hourly wage increases by 2-3 percent. An increase in the cost of labor would therefore not allow for the release of sufficient resources to compensate for the reduction in hours worked with new hires. If in this case the effect on unemployment is zero - or very low -, the employed will instead be able to benefit from the greater free time available.
Finally, the third mechanism to be aware of concerns the possibility that reductions in working hours lead to increases in productivity through, for example, a better organizational structure or a more prudent use of the less time available. On average, however, higher productivity brings with it not only reductions in the price of products - and therefore a greater demand for them by consumers - but also wage increases.
However, if the increase in productivity turns out to be more than proportional to the reduction in working hours, then the effect on employment could be positive. Studies have shown that a reduction in working hours of about ten hours per week can potentially lead to increases in productivity of between 10 and 30 percent. In these cases, however, the question to be asked is whether reductions in working hours are really necessary to obtain these improvements or whether, on the other hand, the positive effects can be obtained independently of them.
Some of the projects currently in the pipeline (among these, the one carried out by a regional councilor from Emilia) also envisage direct public support or through welfare systems to compensate the income of workers affected by the reduction in hours worked, and therefore in wages. If the ends – such as the fight against unemployment – can undoubtedly be appreciable, the means in this case are decidedly less so: faced with a mechanism that is anything but obvious, in fact, great caution is needed in financing the destruction of work in the hope of its subsequent and automatic creation.
Source: Lavoce.info
