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Hours of Work: Moving Beyond Gridlock


The policy dilemma
The policy cuckoo
An econometric cuckoo, too?
A closer look at costs
Betting against a sure thing?
The taxman giveth and the taxman taketh away
The undertime tax
Prisoner's dilemma
Beyond the fringe
Policy suggestions


Inspired by Jeremy Rifkin's The End of Work, British Columbia Premier Glen Clark has been talking about the need to look at sharing work. That's good. But to translate this laudable aim into reality, Clark has to grapple with a stubborn pair of policy riddles: what to do about overtime pay and how to contain per worker costs.

While unemployment in Canada hovers near 10 percent, many of those who are employed are working longer hours. StatsCan analysts point to a growing polarization of working hours. At the bottom of the earnings scale, the gap reflects more frequent and longer-lasting periods of unemployment. At the top, it reflects the longer hours worked by more highly-paid, full-time workers. Many observers -- including a federal advisory panel on working time -- have argued that reducing overtime would bring down the rate of unemployment.

Overtime pay legislation was supposed to discourage employers from scheduling too much overtime. It was also designed to allow them some flexibility to deal with emergencies and meet surges in demand.

But overtime pay has become a staple of many wage earners' paycheques. And, in spite of the premium rate, it's often cheaper for employers to use overtime rather than hire more workers. It's cheaper because of the high proportion of costs that are fixed per worker -- costs of hiring, training, fringe benefits, payroll taxes, statutory holidays and breaks.

The link between high per worker costs and overtime is old news. And it has long been understood that public policy encourages and often imposes the long hours bias of high per worker costs. What remains a mystery is why governments, employers and unions fail to take the logical next step: make labour costs depend as much as possible on the actual hours worked rather than the number of workers employed.

Last week, for example, federal Finance Minister Paul Martin proudly announced agreement to increase Canada Pension Plan contributions. The change will significantly increase per worker costs as a proportion of payroll. The predictable result: fewer jobs and more overtime.

What about increasing the overtime penalty, then, to make it a real deterrent? Although that might indeed discourage overtime, it is less certain how much of the work could be translated into new jobs. In fact, economists caution such a "solution" could lead to slower growth and, consequently, less employment.

But if reducing the amount of overtime worked can bring down unemployment and give workers more time to spend with their families, how might such a worthwhile goal be achieved?

First, let's be clear about the record of the overtime penalty: it hasn't worked. Time and a half has proven to be more of an incentive for workers to work overtime than a deterrent for employers to schedule it.

Instead of tinkering with the size of the penalty, let's take a fresh look at what we want to achieve: a reliable level of income for workers, scheduling flexibility for business and -- to share the work -- an effective limit on the hours of work. Why not replace the standard work week and day with work schedules that float -- depending on the volume of work to be done -- between a firm floor and a firm ceiling?

Second, dismantle the wall of per worker costs. A good place to start would be with employer contributions to Employment Insurance and Canada Pension: raise the ceilings and lower the rates. Canada now has the most regressive payroll tax structure in the OECD. Improving on this dismal record wouldn't be hard.

But there's no need to wait for the federal government to act. Provincially, the ceiling could be raised and rates lowered on Workers' Compensation. Health insurance could move from individual premiums to an assessment on total payroll. Many fringe benefits could be changed from per worker to hourly costs. Clearly, some costs by their nature are per worker costs. But many others are so only by convention.

Finally, let's stop agonizing about the plight of high-wage workers starved for overtime pay or companies whose profit margin depends on a high volume of regularly scheduled overtime. There's a million and a half unemployed in Canada; they've got bills to pay, too.