Cut the working week to a maximum of 20 hours, urge top economistsFor extra credit, explain which famous economic fallacy these 'top economists' (ho, ho, ho) have committed, and why they are obviously deranged.
Job sharing and increased leisure are the answer to rising unemployment, claims thinktank
Monday, January 09, 2012
Predictable competition time!
Easy rules: below the line, guess the newspaper and guess the, um, 'think tank' which generated this headline. (Anyone who listened to Start the Week is disqualified.) You have to post both correctly to win this [year's] quiz and carry the kudos of current quiz winner. I expect the first post to contain the correct answer.
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Guardian, who cares? lump of labour fallacy
Ditto, New Economics Foundation, ditto.
'New', in a previously unknown sense of 'comlete tosh', perhaps.
It's economically illiterate, and I am surprised that a soi-disant sophisticated paper like the Groan didn't spot that.
And I was wrong: it took two comments! Richard correctly identifies the newspaper and the think-tank, so takes the prize, which is to be named in the sidebar as the current quiz winner. You'll be replaced next time I run a fun, fun quiz with whoever wins that one (including being replaced by yourself, if you win).
And here is the link to the original Guardian article: link. As usual, a handful of the commenters have picked up on the Guardian's inability to spot economic woo, while most of them think this plan is flawless.
Maybe I'm missing the fallacy, but I'm reading the NEF argument as being: given the current amount of paid labour, it would be better if it were distributed more evenly (e.g., better to have two people working 20 hours per week than one working 40 and the other unemployed). I missed the bit where they said the amount of work available to labourers is fixed. Obviously it won't double overnight (so maybe treating it as relatively fixed is not too unrealistic), but where do they claim it is fixed?
You said it yourself: "given the current amount of paid labour". That's the assumption that paid labour is fixed, right there. If the demand for labour fell then you wouldn't be able to distribute the work in the way nef suggest; if demand rose, then some work would go undone.
And it's nonsense for various reasons. At the lowest level, the French 35-hour week has not been a raging success. It is credited with creating hundreds of thousands of jobs, but in an environment where employment grew throughout the West, and with large state subsidies. It does not look like a self-sustaining solution. Why should 21 hours be any better?
Moreover, employing two individuals has a higher fixed cost than employing one, so it is less efficient. Consequently, output will decrease at the margins. Import prices will rise, and I would expect hourly wages to fall, since marginal productivity would decline.
But the nef papers on this routinely fail to explain whether they expect hourly pay to fall or rise, and what effects there will be on prices. Working half a week and therefore getting half the pay mightn't be so painful if prices halved; but there is absolutely no reason to believe they would. In my view, the most likely outcome is that most things would seem as much as twice as expensive as they used to be — or more, in the case of imports.
It gets even worse than that. The lump of labour fallacy is wrong in the same way that 'They come over here, taking our jobs!' is wrong. It's exactly the same fallacy: the idea that there is a certain amount of work which needs to be done and that if one person does it then another person can't. If you believe in restricted working hours as a boost to employment, then you ought to believe that closing the borders would be good for employment.
The lump of labour model is a zero-sum model of the economy; manifestly false since the economy grows faster than the population. It has no recognition of the demand which is created by the person with the job which may, in turn, employ the otherwise unemployed person. And it baffles me that nefites of all people, as self-described Keynesians, should need such a point explaining to them.
It is possible that as productivity rises, we may choose to take more of the productivity in leisure time rather than in remuneration. But the law cannot make this happen any more than the law can turn gravity on its head.
On the French experience, here is a CEPR paper which backs up quite how dismal the 35-hour week has been (pdf).
Theoretical models suggest reducing hours can tilt an economy towards capital and away from labour; other empirical studies suggested that reducing work hours increased churn in the labour force; wages tended to go up to compensate for the lost hours, which sounds nice until you realise that this decreases demand for labour; and the authors found that satisfaction with work hours and amount of leisure time did not increase. (The latter probably because workers replaced market output with domestic output.) This really doesn't look good, and that's for a slight 10% reduction in hours.
"Working half a week and therefore getting half the pay" - that doesn't follow (tax-free allowances). And if one person works 40 hours per week to support himself and an unemployed person, then there is just as much money to earned and spent as if both those people worked (say) 25 hours per week (allowing for the lower efficiency that you mention, which I think would lead to falling hourly pay). So it's not obvious that the latter situation would lead to decreased demand for other goods, on average (even if sales of expensive holidays and of Asda Smart-Price Edible Plastic would suffer).
No doubt it is a complex issue. But if, in purely monetary terms, it is better for one person to work ridiculous hours and for the next person to be unemployed, then I think the problem is that we are thinking in purely monetary terms. That's what I like about the NEF emphasis on wellbeing rather than on GDP.
(I'm not sure your immigration point works. Surely no one is claiming that demand for labour is independent of the size of the population?)
Sorry, half the pay before tax 'n' benefits. This isn't a story in which the State figures, beyond telling everyone that the standard work-week is 21 hours.
Throughout this idea, the nef makes assumptions which cannot be defended. For a start, that prices will change in line with household incomes. I don't believe that assumption for a moment.
(And when thinking about changes in demand, it's not a good idea to assume that only things you dislike would suffer. I would expect an increase in people struggling to pay rent and fuel bills, before transfer payments; which is mad, because one of the claimed benefits is a decrease in transfer payments!)
They also assume that the unemployed are doing nothing which we would not miss if we lumped them with 21 hours of paid employment, taken from the currently employed. Or that they would not miss.
For example, consider a family with one working parent and one home-managing parent: it is not necessarily a gain to force them both to de-specialise. If one parent is significantly better paid than the other, then it can be eminently sensible for the better-paid parent to work full-time and bring in enough money so that the other can manage the household effectively.
They also forget about heterogeneity and skills: we cannot lose half a surgeon and gain half a hairdresser. That is folly. But if we think about those skilled jobs, in healthcare, education, manufacturing or service, who would pick them up, who isn't already doing it? Or do we get ill half as often, need our hair cutting half as often, educate our children half as much, too?
I shall think about the immigration point further. You may be right, but something is bugging me: it does look like the two positions are too similar for comfort.
Barbers used to perform surgery too you know...
I must admit that 21 hours does sound very low, and agree with the point about sharing the paid and unpaid work between two parents (I suppose I didn't have such situations in mind when thinking about unemployed people). I think I need to listen to Start the Week as I'm only going on the Guardian article for now...
On immigration, if all the people coming into the country take up full-time jobs, then P(unemployed | British) goes up, presumably (assuming constant lump of labour per capita). Probably not by much though.
Yes, so the argument is then that not every unemployed person is doing nothing. that is, it doesn't just go for families: we all benefit from people doing voluntary work, and from artists or actors who are not necessarily conventionally employed.
Now, this business of worthwhile labour may be less true for people claiming jobseeker's allowance, as claiming it implies that they are looking for work. But certainly just averaging out across the working-age population is illegitimate: you should really be looking at claimants, and I guess adding a fudge factor for non-claiming unhappily unemployed. Unemployment, though, is not all that high: about 8.3% of the workforce is out of work and claiming they'd rather be in. I would expect that we'd see quite a lot of things fold which we would rather didn't fold, all because an economic engineer looked at a bunch of averages and thought 'Why don't we...?' without asking about the structure which lies beneath the averages.
I am certain that the eminent economists who came up with this are currently working, in their spare time (the other 148 hours per week) on perfecting Douglas Adams' Infinite Improbablity Drive to enable them to go hitch-hiking all around the Galaxy.
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