Economic Fallacies: wrong-headed ideas about worktime

I’m just back from four days of workshops and public lectures in London, Paris and Brussels. There is tremendous interest in issues of worktime there. The London event was organized by the new economics foundation (nef) , and a research center at the London School of Economics (CASE). In 2010, nef did a very popular report called 21 hours calling for a 21 hour workweek.

I debated a conservative economist on the BBC World Service who called the idea “totalitarian” and “Draconian.” I think it’s a lot more interesting than that. We had overflow lectures and lots of interesting debate. The podcast of the nef workshop and lecture is available here:

Before the meeting,  I published a piece in the Guardian Sustainable Business section. Here it is:

Economists are fond of pointing out fallacies in economic logic, and unorthodox economists are especially fond of the sport. Adam Smith’s famous maxim that the self-interested behavior of individuals produces the common good is one widely-held fallacy. It was spectacularly debunked by the selfish behavior of the 1% who crashed the world economy in 2008.

Keynes’ fallacy of composition is another well-known example of debunking. Standard thinking holds that if people try to save more in order to cope with stagnation, that will lower interest rates, spur investment and create more jobs and growth. Keynes showed that higher saving in the absence of sufficient demand would actually lead to reductions in investment, a contraction in output, and, in the end, less benefits from saving for the thrifty.

There’s another analogous fallacy going around, which is that hard times should lead us to work longer and more intensively. A new economics foundation conference I’m attending in London this week will take up the question of working hours. Should wealthy countries be thinking about raising or lowering hours of work?

On the face of it, the work intensification approach makes sense. The downturn has reduced incomes and growth. For the individual, trying to work more is sensible – future conditions in the labour market are more uncertain. Expected future returns on financial assets are lower. Housing prices are deflating. For a nation experiencing relative decline, putting its nose to the grindstone makes intuitive sense.

But acting this way en masse risks triggering forces that operate in the other direction. Right now we’re experiencing glutted labour markets, in OECD countries as well as globally. Labour economist Richard Freeman estimates that over the last decade, the effective global labour supply has about doubled, from 1.46 to 2.93 billion. If people offer more hours to the market, wages fall and unemployment rises. Excess supply of labour also undermines investment and innovation, which accelerate when labour is scarce relative to capital.

Lump of labour! Lump of labour, the critics will cry. That’s the supposed mistake of economists like me who call for reductions in work hours during times of high unemployment. The critics believe the market can always provide enough work for whoever wants it.

But are they right? There’s little question that most of the OECD now finds itself in a Keynesian world of weak aggregate demand, ineffectual monetary policy and investor pessimism. And reducing budget deficits makes these problems worse. Corporations are sitting on enormous cash reserves, unwilling to invest them, which means that falling wages won’t clear the labour market and lead to more employment.

In the models of neo-classical economics times like the present are assumed away. But when we’re actually living through them, we need to recognise that measures that result in higher hours can be counter-productive by creating more unemployment and investor pessimism. Similarly, responding to shortfalls in pension programs by asking people to stay in the labour force more years further dis-equilibrates the market by creating more demand for a limited number of jobs. Sometimes there are impediments to job creation, and we happen to be living through one of those painful periods.

For most of the last 150 years, the nations of the global north have kept their labour markets in balance partly by continuous reductions in hours of work. These increases in leisure time have been funded by higher labour productivity. But recently, the US, Japan and the UK have done far less of this than other wealthy countries. In the States, hours have actually risen, which is part of why unemployment and underemployment are so high. Worktime reduction has become another causality of the wrong-headed economics of austerity. It’s time to change that, and to recognise that when it comes to hours of work, less is actually more.


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5 Responses to “Economic Fallacies: wrong-headed ideas about worktime”

  1. Juliet Schor says:

    This is from a reader who couldn’t post it: David Bean

    From: David Bean
    Subject: Contact me concerning Plentitude

    Message Body:
    I so agree with your premise and yet, alas, disagree with your solution.
    I agree that the economy from within its own process must limit grow, if we are to be here for seven more generations.

    But DIY – Do It Yourself results in decay of quality and increasing volumes of poor quality efforts. Yes, it is a good means of adjusting to poverty, but plenty of slipshod is shortening the life of goods… impoverishing.

    Competitive advantage multiplies wealth among workers! That is what gave the middle class its great success. We just must be engaged in
    ‘green’ labor, and what takes fewer materials than art?

    I propose this alternative. The Art Economy. Two percent of us (Mexicans actually) produce our food, and we all must trade something to get some. So to put EF Schumacher’s lament on its head, lets create employment that refines people… it worked as driver in ancient Athens.

    Fritz wrote ~Today crude materials go into a factory, then come out refined, and labor goes into a factory and comes out degraded.

    Today robots are in factories and the internet has stripped the economy
    of half of its income distribution function.

    Juliet, This was my comment to your great animation page.

  2. ezra abrams says:

    dear prof schor: need to work on contrast between text and background on this blog; there is way to little (see; very childish but a lot of good stuff
    also, default fonts are to small

    BTW, how do you decide if the environmental cost of jetting around the world is balanced by the value of your ideas ? is there some discussion about this anywhere ?

  3. Allison Farnum says:

    I really appreciate this- especially about the danger of higher hours. I constantly tell my employees to not exceed their hours. If they do, the institution will never know the true value of their labor. If you have a job that requires too much of you for the hours you work, something has to give. Too often it is on the backs of the workers..especially in lean times like this where the pink slip is a great fear. Thank you for your reflections, and your contribution to the Center for a New American Dream.

  4. Shawn S Fahrer says:

    Perhaps we have to go back to the ideas of a (discredited?) social theorist named Thomas Malthus (and his essays on increasing population leading to eventual mass starvation and generally bad times until the population is restored to a more sustainable level). In the U S alone, the aggregate population has increased by 70% from the 1960 census (at nearly 180 million) to the 2010 census (at nearly 310 million; an increase of 130 million in that time). With technology REDUCING THE NEED FOR WORKERS, and the population of such workers RISING, it’s no wonder there’s downward pressure on wages (which is being held back in part due to mandatory minimum wage laws).
    I question whether such a massive population increase is sustainable– not just economically, but PSYCHOLOGICALLY. Too many people living in too close a proximity to each other may lead more and more of them (like Jared Loughner, etc.) into “mental illness” (however you choose to define the term, whether orthodox or Szaszian).
    Ironically enough, government MAY be the solution to this overpopulation problem (since it seems to be best when it is killing people — via military and police [physical death], secularism [spiritual death] and taxation [economic death]). Perhaps an across the board “death lottery” where people born on certain days will have to be “sacrificed” for the good of those who remain alive is the way to go (so it can’t be claimed [as Alison above would] that this die-off would be “on the backs of the workers” alone). It seems certain that 300 million total Americans is way too many. Maybe even 200 million is too many. Perhaps the 1960 population level would be too many in 2013 (but we don’t have enough guts to realize it). Call me eugenically cruel– but sometimes (to borrow from Elvis Costello and Nick Lowe) “you have to be cruel to be kind (in the right measure)”.

  5. Juliet Schor says:

    In the US population density isn’t so high–look at the Netherlands, with extremely high density and good social relations–they don’t have madmen shooters as we do–

    In my view we have an overconsumption (to use a word I don’t like) problem more than an overpopulation problem. The places with high population tend to be countries with a lot of poor people who consume very little. Americans consume more than Indians and Chinese by a ratio of 1 to 10 or more in many types of materials and overall

    The kind of argument you are putting forward is dangerous and highly anti-social in my view.

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