This chapter (forthcoming in Lonnie Golden and Deborah Figart, eds., Working Time: International Trends, Theory and Policy Perspectives, Routledge, 2001) contends that neglect of theoretical and empirical knowledge about the economics of working time and the distribution of work may be significantly distorting public policy regarding employment in the English-speaking countries, including Canada. For example, during the period from 1976 to 1995, there has been a polarization of the hours of work in Canada away from a standard 35-to-40 hour week. That polarization of working times may have been an unintended consequence of ill-advised policy incentives rather than an inevitable outcome of the play of market forces.
An unintended policy bias against moderate, standardized hours may lead to employment losses both immediately and in the long term. The immediate loss comes from providing perverse incentives to employers that maldistribute the available work. Ironically, the full extent of short-term employment losses may be concealed statistically by the proliferation of part-time and precarious employment.
The long-term effect may be to impair productivity growth and thus to inhibit the demand-driven expansion of employment and augmentation of wages. Ultimately, unemployment, underemployment and overwork themselves add to the cost of social supports and medical services thus contributing to an upward spiral of the fixed component of employment costs, which then become yet a further barrier to the redistribution of working time.
Over the past 40 years, a consensus has evolved among mainstream economists that reducing the hours of work offers little promise for stimulating job growth. That consensus is based on unsubstantiated claims that proposals for reducing work time universally assume there is a simple ratio between the total hours of work performed in the economy, total employment and the average hours worked by each individual.
The traditional version of the claim is the so-called "lump-of-labour fallacy" -- asserting that proponents of shorter working time assume that there is a "fixed amount of work to be done". A modernized version contends that proponents of shorter working time assume a model of the production function for labour services, L=NH, such that hours worked and number of workers are perfect substitutes.
A survey of the history of economic thought on the hours of labour finds no authoritative source for the claim of a lump-of-labour fallacy. On closer examination, the claim appears to have been a pastiche of partial arguments taken out of context from various sources and reworked into a polemic by publicists for employers' groups opposed to an eight-hour day. That polemic rested on the premise that, contrary to the denials from unions, the real motive for reducing work time was to restrict output. For decades, the judgment of that polemic -- but not its premise -- was uncritically transmitted as "undisputed fact" in introductory economics textbooks.
Similarly, the perfect substitute critique is itself shown to be based on the theoretically unsupportable assumption that the given work arrangements are optimal with regard to both output and worker welfare. This latter assumption was originally posited as an admittedly counter-factual but convenient simplification for the purpose of abstract analysis -- akin to the physicist's frictionless plane. But eventually it came to be mistaken for a realistic description of the successful outcome of the play of market forces in determining the hours of work.
Sir Sidney J. Chapman's theory of the hours of labour had all the credentials and pedigree that the lump-of-labour claim lacked. Chapman was president of the Section on Economic Science and Statistics of the British Association for the Advancement of Science when he presented his theory in an address at Winnipeg in 1909. His analysis came to be regarded as the classical statement of the theory of hours in a free market. Chapman's name draws a blank from most economists today.
Chapman inquired into the relationship between the hours of work, productivity and fatigue. Reviewing experimental evidence that total output per worker quickly recovered to previous levels following a reduction in hours, Chapman attributed the phenomenon to the fact that as production methods become more intensive, workers required more leisure time to fully recover from the fatigue of work. Thus, when the hours of labour were reduced, the better-rested workers were often able to produce as much or more in the shorter hours than they had previously in longer hours.
Chapman further asked whether an optimal length of working day would likely be established by the workings of a free market and whether the optimal length of day for output coincided with the optimal length from the perspective of the workers' welfare. His conclusions in both cases were negative.
Using Chapman's theoretical arguments and productivity estimates developed by Edward Denison in the 1960s, a hypothetical 10 percent reduction in the average full-time workweek, from 42 to 37.8 hours, is projected to enable a 4.9 percent gain in hourly productivity per worker and a potential 5.9 percent expansion of full-time employment. Actual and imagined barriers to this outcome are identified and discussed in the paper.
Strange as it may sound, the reduction of work time is a labor-saving device, albeit a uniquely worker-friendly one. Mainstream economists' longstanding trepidations toward reducing the hours of work contrast ironically with their usually confident embrace of other labor saving innovations, such as computers, machinery or power technology.
Over the long run, the way that shorter work time creates jobs is no different from that of any other aid to efficiency, whether it be a mechanical loom or a silicon chip. In the past, reducing the hours of work has created jobs by lowering the costs of production and thus by making the products of industry more affordable to consumers. Unlike other labor saving devices, though, limiting the hours of work can also create jobs in the short term by redressing current imbalances in the distribution of work. Also unlike other labor saving devices, progressively reducing the hours of work makes a priceless good, free time, directly available to workers in ever greater abundance. The claim of a lump-of-labor fallacy is an unwarranted rationalization that obstructs serious discussion of the benefits of shortening work time.