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The current concerns about the state of the planet require something of a paradigm shift for economics. If we don't make serious changes soon, probably in the next 10 or 15 years, we may find that it's too late. – Presidential candidate Obama, (paraphrased by David Leonhardt).
The announcement of a White House Task Force on Working Families presents a welcome opportunity to explore and develop policy options aimed at raising and protecting the standard of living of middle-class, working families in America. This submission specifically addresses four of the major objectives for the Task Force, as elaborated in statements by President Obama and Vice President Biden, and in the theme for the first meeting of the Task Force on February 27, 2009 in Philadelphia, Pennsylvania: • • • • improving work and family balance; restoring labor standards; ensuring that the benefits of economic growth reach middle-class, working families; focusing on "green jobs" that "use renewable energy resources, reduce pollution, conserve energy and natural resources and reconstitute waste."
The underlying argument of this submission is that the key to addressing the issues of work and family balance, labor standards, equitable distribution of the fruits of economic progress and protection of the environment lies in understanding the crucial social contribution made by regulating and limiting the hours of work. In the absence of countervailing union pressure or government policy, there is a structural bias that leads to the prevalence of socially and environmentally destructive long hours of work. In recent decades, government policy in the U.S. has acted more to reinforce that structural bias than to attenuate it. This submission calls attention to a promising policy innovation to redress this imbalance that was recently proposed by Dean Baker of the Center for Economic and Policy Research. Baker has suggested that the government could offer tax breaks to employers as an incentive to provide paid time off. As part of an economic stimulus strategy, those tax breaks could cover all or most of the paid time off and create an incentive to hire more workers.
Families and Work
No government, however firm might be its wish, can avoid having policies that profoundly influence family relationships. This is not to be avoided. The only option is whether these will be purposeful, intended polices or whether they will
be residual, derivative, in a sense, concealed. – Senator Daniel Patrick Moynihan, (cited by Karen Kornbluh). Government policies have serious, even if unintended consequences for families. Those policies may be unsuitable because policy makers don't take into account all of the factors involved but they may also become outmoded over time as the circumstances of families change. Although, American families have changed substantially since the 1960s, many policies aimed at providing income security have remained unchanged since the New Deal of the 1930s. "The failure of the workplace to make accommodations for working parents," according to Karen Kornbluh, "is one of the biggest unmet demands of American voters." In 1960, 70 percent of US families with children fit the expected male breadwinner model with a wage-earner dad and a stay-at-home mom. Today, two-thirds of all families with children are either single-parent or dual-earner families. Between 1979 and 2000, the hours worked per year by married couples with children increased by 16 percent, or nearly 500 hours. That translates into a weekly increase from 60 hours in 1979 to 70 hours in 2000. One out of every eight of those couples worked a total of 100 hours or more a week. Without that increase in mothers' wage-earning employment, Jared Bernstein and Karen Kornbluh reported, the earnings of middle-income families would have stagnated between 1979 and 2000 and those of lower and lower-middle income families would have declined – in the case of lower-income families by an average of nearly 14 percent. Their analysis, however, overlooks another possibility – that the increased supply of hours may have also contributed to the depressed wages through a feedback loop or vicious circle with a zero-sum outcome. In a treadmill effect, the attempt to "catch up" by working longer hours leaves wage earners falling farther behind in hourly wage rates. In the U.S., there has been no policy action and little serious debate directed at reducing the hours of work over the past quarter century. In the 25 years from 1979 to 2004, average annual hours of work in the U.S. remained almost unchanged, declining only 37 hours, or slightly less than two percent. Meanwhile, in Europe, average hours of work fell significantly during the same period. In Germany and France, for example, hours declined by around 330 hours or 19 and 18 percent, respectively. Even Japan, with its reputation for long hours of work, registered a decline of over 300 hours, or nearly 16 percent, in average annual work hours. The European Union has adopted directives on hours of work and on part-time work and the Japanese government has similarly implemented policies promoting work-time reduction. In the U.S., however, instead of confronting the issue of the hours of work head-on, most work-family advocates have focused on the need for "family-friendly" policies such as child-care, paid family leave and flexible scheduling that mitigate the effects of a seemingly immutable working time regime. Kornbluh has warned of the danger that such a focus might marginalize women's and families' concerns as 'special interests'. "The challenge," she noted, "is to frame work-life balance as a broader political economy issue." The rest of this submission undertakes to sketch how such a reframing can be achieved.
Full Employment and Shorter Hours in Historical Perspective
For as much as government can do and must do, it is ultimately the faith and determination of the American people upon which this nation relies. It is the kindness to take in a stranger when the levees break, the selflessness of workers who would rather cut their hours than see a friend lose their job, which sees us through our darkest hours. – President Obama, Inaugural Address Historically, work-life balance was framed as a broader political economy issue in labor's 19th century agitation for the eight-hour day. That aspect of the movement is shown in the popular song lyrics celebrating, "eight hours for work, eight hours for rest, eight hours for what we will." For nearly a century, from the 1860s to the 1950s, American labor unions also upheld the reduction of working time as their focal strategy for combating unemployment. The reasoning was summed up in a famous quote from Samuel Gompers, founding president of the American Federation of Labor: "The answer to all opponents to the reduction of hours of labor could well be given in these words: that so long as there is one man who seeks employment and cannot obtain it, the hours of labor are too long." An industrial commission established by the United States Senate reported in 1902 that the reduction of working time "is the most substantial and permanent gain which labor can secure." "On the side of the working population there can be no question respecting the desirability of fewer hours, from every standpoint. They gain not only in health, but also in intelligence, morality, temperance, and preparation for citizenship." Seven years later, British economist, Sir Sydney J. Chapman, who later was to become chief economic advisor to the U.K. government observed, "The ideal working day of the future cannot be eight hours, for it must be essentially a progressive ideal. As a community advances, agitation for shorter hours will be constantly breaking out anew." Writing just two years before the stock market crash of 1929, economist Henry Raymond Mussey noted that, "No student of American labor history can fail to be struck with the extraordinary importance of the eight-hour issue in union thinking during the formative years of the American Federation of Labor." During the Depression of the 1930s, the AF of L declared the adoption of a five-day week and six-hour day as its immediate objective. Gompers's successor, William Green, predicted that a 30-hour workweek would put the 12,000,000 unemployed at the end of 1932 back to work. Although routinely dismissed by orthodox economists as a "lump-of-labor fallacy", the union conviction that reduction of working time could combat unemployment received endorsement in 1932 from economist Dorothy W. Douglas. According to Douglas, the eight-hour theory first outlined by Ira Steward some 60 years earlier, in the 1860s, represented a "philosophy of American wages and unemployment that sounds strangely apposite today." What impressed Douglas most about Steward’s theory was his argument that unemployment and low wages lay at the root of economic depressions. The theory posited leisure and leisure-time consumption as major tools of economic stimulus, driving both higher wages and improved productivity. After the Second World War, though, the unions' enthusiasm for shorter hours waned. There was a brief flurry of interest in the four-day workweek mid-1950s, when automation threatened to decimate jobs in manufacturing. But the launch of Sputnik in 1957 diverted attention to the "space race" and scientific and economic competition with 3
the Soviet Union. By the early 1960s, the AFL-CIO sounded almost apologetic about continuing to advocate a shorter workweek: "Organized labor has not made shorter hours its first choice in the campaign against unemployment…." Instead, the federation primarily focused its efforts on urging government spending to stimulate economic growth and only sought shorter hours as a "last resort." Without concerted union pressure or government regulation, there is a structural bias in a competitive labor market in favor of longer hours of work. In his classic theoretical analysis of the hours of labor (see Appendix A), Sydney J. Chapman reasoned that the benefits from investing in working shorter hours are difficult for an individual firm to capture and individual workers competing with other workers for jobs are rarely in a position to dictate their hours of work to an employer. Juliet Schor has expanded on the reasons for this structural bias: • • • • longer hours of work raise the cost of job loss and thus make the worker more dependent on a given employer; when employer-paid benefit costs are assessed per-person rather than a per-hour it creates an incentive for longer hours; salary employment rather than hourly wage employment makes extra hours of work effectively "free" to the firm; and longer hours of work – combined with slacker labor markets – allow firms to be more selective in their hiring of workers.
Keynesian Fiscal Stimulus and Economic Growth
What had changed between the 1930s and the 1960s was the acceptance of the idea that government deficit spending could stimulate economic growth, an idea popularly known as "Keynesianism." Strictly speaking, though, this wasn't exactly Keynes's idea. Keynes had argued for fiscal stimulus, under certain conditions, to attain full employment, not economic growth. He did not accept the idea that boundless expansion of production and consumption was worthwhile for its own sake. Keynes, furthermore, singled out "working less" as the ultimate cure for unemployment, first in a Treasury Department memorandum in 1943, "The Long Term Problem of Full Employment," and two years later in a letter to the poet, T.S. Eliot: The full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less. Personally I regard the investment policy as first aid. In US it almost certainly will not do the trick. Less work is the ultimate solution (a 35 hour week in US would do the trick now). How you mix up the three ingredients of a cure is a matter of taste and experience, i.e. of morals and knowledge. – John Maynard Keynes The imperative for growth was a notion added by economists, R.F. Harrod and E.D. Domar, who felt that full employment could only be realized in the context of growth. That constraint, however, may have been a limitation of the model they used to analyze the problem rather than an essential aspect of the problem of full employment itself.
Keynes's preferred alternative to economic growth – work-time reduction – does not lend itself to the mathematical model-builders' alchemy precisely because, as Chapman's theory demonstrated, there is not a proportionate relationship between the number of hours worked and industrial output. In fact, a reduction in hours worked per person can even lead to an increase in total output per person – a mathematically-paradoxical outcome that is perfectly understandable from the perspective of human fatigue and performance. Economic growth is also politically appealing because it allows decision-makers to avoid controversial distributional issues – at least temporarily – while at the same time securing a cornucopia of increased tax revenues without increasing tax rates. To paraphrase Moynihan, though, no government can avoid making policy decisions that redistribute income. The only option is whether they will be purposeful, transparent policies or residual, concealed ones. The growth paradigm only defers conflict over distribution to another day. By the mid-1970s, however, the idea that governments could "fine tune" economic growth through tax cuts and deficit spending had fallen out of favor in the U.S. and U.K. due to of the emergence of stagflation – the bothersome coexistence of inflation and unemployment. British Prime Minister James Callaghan summarized that disillusionment in 1976: We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step. Notwithstanding such disclaimers, the U.S. Government has run deficits totalling nearly five trillion dollars in 27 of the 31 years since Callaghan proclaimed the demise of "spending your way out of a recession." Most of those years were not even recession years. At the same time, governments shifted their target from full employment to economic growth constrained by a so-called "natural" or "non-accelerating inflation rate of unemployment" – or in plainer words, not-quite-full employment.
Social Impacts of Growth
Positional competition not only draws resources away from the output of final consumption goods and services in the commercial sector, it also draws resources away from the non-commercial sector, from activities that remain partly or wholly outside the market and the cash nexus…. This has helped to upset a long-held expectation about the potential fruits of economic growth – namely, that they will be taken increasingly in the form of relief from material pursuits. – Fred Hirsch In his Social Limits to Growth, Fred Hirsch outlined another factor contributing to the waning political pressure for shorter hours. In his analysis, Hirsch distinguished between the material economy defined as "output amenable to continued increase in productivity per unit of input" and the positional economy, relating to "all aspects of goods, services, 5
work positions and other social relationships that are either (1) scarce in some absolute or social sense or (2) subject to congestion or crowding through more extensive use." Hirsch argued that continued economic growth would lead to an increase in effective demand for, and consequently the relative cost of positional goods compared to that of material goods. Competition for these socially or physically scarce goods draws resources away from the output of final consumption goods. For example, more time and money are devoted to activities such as commuting to work or obtaining additional job credentials to meet the intensified screening of job applicants. Consumption associated with competition for positional goods counts in the national income accounts as final consumption and thus figure in the calculation of economic growth even though their purpose is simply to keep up with the escalating demands caused by crowding and screening. Thus, like the Red Queen in Lewis Carrol's Through the Looking Glass, "it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!" The increased competition also exacts a personal cost in terms of time pressure. In what Hirsch called "the economics of bad neighbors", individuals are compelled to spend more time in market activities and thus have less time to spend in non-commercial pursuits such as production for home consumption, leisure and non-status seeking sociability. "This has helped to upset a long-held expectation about the potential fruits of economic growth – namely, that they will be taken increasingly in the form of relief from material pursuits." Hirsch's critique summed up what is colloquially referred to as "the rat race." Robert Frank also discussed the pernicious effects of positional competition on leisure time in his 1999 book, Luxury Fever. As Frank pointed out in a later paper, available evidence supports the idea that most Americans would be happier and healthier if they worked fewer hours, yet the economics profession ignores the detrimental effects of positional competition. It gets worse. With regard to health, there is a positive feedback loop between long hours, poorer health, higher health care costs and resistance to reducing those long hours. Increased job stress leads to depression, obesity and social isolation, which contribute to escalating health care costs (which, perversely, nevertheless count as "economic growth"). The employer-paid insurance people need to meet their health care expenses is usually only available to full-time employees and those per-employee premiums, in turn, create financial incentives for employers to minimize the total number of employees while maximizing their hours of work. Thus working long hours increases the cost of working thereby making it necessary (from a limited accounting perspective) to continue to work long hours or work even longer hours. Inefficiency that breeds inefficiency nevertheless counts as GDP growth! It would thus seem from Hirsch's analysis of positional competition that government policies to stimulate sustained economic growth have undermined both the collective impetus, through labor unions, for shorter working time as well as individual's perceptions about whether or not they can "afford" to take time off from paid work. If this is indeed the case, then the disappearance of agitation for shorter hours has been a hazardous side effect of the economic stimulus tonic. To the extent that work time 6
reduction is a boon to "health, intelligence, morality, temperance, and preparation for citizenship" then government policy should actively seek to mitigate the impacts of economic growth policies on working time. Failure to do so would have consequences not only on public health, intelligence, etc. but also would tend to increase both the costs of government services and the need for escalating amounts of economic stimulus and higher rates of economic growth to attain an increasingly elusive full-employment goal. This in turn has consequences for energy consumption, green house gas emissions and other aspects of resource exhaustion, waste and environmental pollution.
Environmental Side Effects
People in rich countries can continue to strive for economic growth despite the strong evidence that continual economic growth is not an option from which all can benefit, or we can try a different tack. We can place less emphasis on work, production and consumption, especially for those of us who have them in excess, share what we do have with the less advantaged, and get more out of life by having more time to ourselves. One of the ways of doing this is to further reduce the average hours of employment for the bulk of the working population and increase the employment opportunities for the unemployed and the underemployed. – Peter Victor What will happen if reduction of working time is not included in the economic recovery strategy? In a report titled "Are Shorter Work Hours Good for the Environment: A comparison of U.S. and European Energy Consumption," David Rosnick and Mark Weisbrot of the Center for Economic and Policy Research looked at the potential environmental effects of trends in working time. They found that if European countries adopted the long working hours prevailing in the U.S., they would consume 25 percent more energy. Conversely, if the U.S. adopted working times closer to the European average, it would consume 20 percent less energy. Canadian ecological economist Peter Victor modeled the effects on the environment, poverty and unemployment of various economic-growth scenarios. If we rely on economic growth averaging 2.5 percent annually to supply jobs, greenhouse gas emissions will increase by around 75 percent over the next 30 years, even if the intensity of emissions continues to decline at a rate consistent with the historical trend. The climate consequences of those increased emissions will eventually impose abrupt reductions in our standard of living, beyond the control of either government or private individuals. Meanwhile, poverty and unemployment will creep steadily upward. Simply ceasing economic growth cold turkey, however, would result in catastrophic increases in poverty and unemployment. Only by slowing economic growth, reducing working time and targeting investment and regulatory policy on greenhouse gas reductions in combination can the goals of environmental protection and reduction of poverty and unemployment be achieved simultaneously. Fifty years ago, in Resources for the Future lecture, John Kenneth Galbraith asked: If we are concerned about our great appetite for materials, it is plausible to seek to increase the supply, to decrease the waste, to make better use of the stocks that are available, and to develop substitutes. But what of the appetite itself? 7
Surely this is the ultimate source of the problem. If it continues its geometric course, will it not one day have to be restrained? Yet in the literature of the resource problem this is the forbidden question. Over it hangs a nearly total silence. It is as though, in the discussion of the chance for avoiding automobile accidents, we agree not to make any mention of speed! In the half-century since Galbraith made those remarks, many scientists and economists have asked the forbidden question about restraining growth. Clearly cleaner technologies, greater efficiency and renewable sources of energy are part of any solution to the problems of limited resources and adverse environment effects of industry. But another, essential part of a comprehensive green strategy has to focus on developing alternatives to the imperative of economic growth. Ultimately, the technological responses need to be integrated with the ethical and social responses.
A New Economic Paradigm
In his August 2008 New York Times Magazine article profiling "Obamanomics", David Leonhardt mentioned a moment in his conversation in which then-candidate Obama cited Robert F. Kennedy's 1968 speech about how the Gross National Product is not a good measure of the quality of life. In that speech, Leonhardt wrote, "Kennedy argues that a country's health can't be measured simply by its economic output. That output, he said, 'counts special locks for our doors and the jails for those who break them' but not 'the health of our children, the quality of their education or the joy of their play.' "The second point Obama wanted to make," Leonhardt continued, "was about sustainability. The current concerns about the state of the planet, he said, required something of a paradigm shift for economics. If we don't make serious changes soon, probably in the next 10 or 15 years, we may find that it's too late." In a very real sense, "the new paradigm" is not all that new. Simon Kuznets, who developed the national accounts system, had cautioned in his first report to Congress in 1934, "… the welfare of a nation [can] scarcely be inferred from a measure of national income…" Too often, though, public debate about economic growth has assumed the very thing that Kuznets had warned could "scarcely be inferred." Another unwarranted assumption has crept unheralded into our calculations about economic growth and national welfare. That assumption, branded naïve by Lionel Robbins in 1929, is that industrial output rises and falls in proportion to the number of hours worked. Sir Sydney J. Chapman disproved that naïve assumption 100 years ago in his theory of the hours of labor. However, in their eagerness to build mathematical models of growth, economists since the late 1930s set aside Chapman's theoretical insight. They didn't dispute it. They haven't refuted it. They simply ignored it. Why? At first, because it was too hard to model – especially seventy years ago without the help of computers – and subsequently, because relying on that 'naïve assumption' had become standard practice – no one questions it.
The implications of Kuznets's and Chapman's observations are that not only could we potentially have improved welfare with less total economic activity but also that we could even enjoy greater material prosperity along with less waste of resources and greater opportunities for leisure. Our current economic paradigm does not distinguish between production for use and production for the sake of growth and thus sacrifices small but meaningful gains in the former for larger but pointless gains in the latter. It would be irresponsible to continue to cling to that flawed paradigm simply because "that's the way we've always done it."
In the late 1990s, a Canadian federal government task force, "Collective Reflections on the Changing Workplace," concluded that, "Currently, public policy sometimes creates artificial incentives for employers to hire part-time instead of full-time workers, and to increase significantly the weekly number of hours worked by existing employees." Consequently the task force advised that: "Public policy should not create artificial incentives for a longer work week or for creating part-time jobs at the expense of fulltime ones." Many of the policies the Canadian task force singled out have counterparts in the U.S. Those artificial incentives are in addition to the adverse side effects of economic growth addressed above in this submission. A good place to start in addressing the White House Task Force's objectives of improving work/family balance and restoring labor standards would be a review of existing policies with a view to eliminated perverse incentives for long hours of work or sub-standard part-time or contingent work. Policy areas to examine can be gleaned from the reports of the Canadian Collective Reflections on the Changing Workplace and the earlier Canadian federal government Advisory Group on Working Time and the Distribution of Work. Dean Baker of the Center for Economic and Policy Research has proposed government subsidies for shorter hours and vacation pay as part of the economic stimulus plan. The government could give employers an incentive to provide paid time off now by giving tax breaks to cover all or most of the paid time off. For example, if firms gave workers 3 additional weeks of paid vacation a year, the government could offer to provide a tax break for two years that would cover this cost up to $2,500 per worker for the two years covered by the stimulus package. This sum would be sufficient to fully cover three weeks of vacation for workers earning less than $40,000 a year, which would be most workers in the economy. This is a neat form of stimulus because it directly gives employers an incentive to hire more workers, as can be easily shown. Suppose employers of 50 million workers take advantage of this deal, cutting their workers’ time by an average of 6 percent as discussed in this example. These 50 million workers will have exactly as much money to spend as they did previously, so presumably their consumption will not be affected. However, the employer will now be getting 6 percent less work performed because everyone is only working 49 weeks a year, rather than 52 weeks. Since demand for the companies’ products’ will not have changed, and the companies’ 9
labor costs have not changed (the additional cost was picked up by the government), they will presumably want to hire roughly 6 percent more workers to make up for the lost hours. If employers of 50 million workers took up the deal, then this 6 percent would translate into 3 million jobs. This would be a very good start for getting the economy back towards full employment. There would undoubtedly be considerable technical challenges to implementing a scheme such as that outlined by Baker. But there are challenges to implementing any stimulus package or policy reform. Those technical difficulties cannot be used as an excuse for doing nothing and continuing on with policies that degrade the environment and middle class living standards in the unreflective pursuit of economic growth.
Epilogue: An American Vision
On November 2, 1865 – one month before the Thirteenth Amendment to the US Constitution abolished slavery – the great antislavery activist and orator, Wendell Phillips, proclaimed his vision from the platform of Faneuil Hall in Boston that, "before this movement stops, every child born in America must have an equal chance in life." The election of the first African-American President United States of the United States symbolizes the progress made in a century and a half toward fulfilling that vision. There is still far to go, though, before every child born in America has that equal chance in life. The movement Phillips referred to in his Boston speech was the movement for an eighthour working day. Seventy-three years after his speech, the Fair Labor Standards Act of 1938 made the eight-hour day and the 40-hour workweek the law of the land. Another 70 years have passed since passage of the FLSA, but the standard workweek remains deadlocked at 40 hours despite immense increases in productivity and profound changes in the circumstances of working families. A century and a half ago, eight hours was envisioned as a step on the path to higher ideals. More leisure would allow for education and uplift, which would lead to more effective citizenship and political participation. Through higher wages and lower unemployment, eight hours would bring about a more equitable distribution of the products of industry. Achievement of the eight hour day would inspire a movement for the six-hour day and, eventually, to industrial co-operation: "In this final arrangement, every man will combine in his own person the laborer and the capitalist." Inscribed on the Liberty Bell in Philadelphia is the Bible verse, "Proclaim LIBERTY throughout all the Land unto all the inhabitants thereof." The phrase comes from Leviticus 25:10 in the Old Testament and refers to the ancient custom of the Jubilee year in which slaves were freed and land returned to former occupants who had lost it through indebtedness. Abolitionists in the 1830s adopted it as their slogan and gave the bell its current name. In 1868, when Congress passed a law establishing an eight-hour day for laborers, mechanics and other workers in federal government employment, it was hailed as the "Jubilee of Labor." A renewed American vision looks forward to a new Jubilee, resuming the progressive reduction of the hours of work – with its associated increases in leisure and real
prosperity and decreases in unemployment, waste and insecurity – as the surest way to "Proclaim LIBERTY throughout all the Land unto all the inhabitants thereof" and to ensure, at last, that "every child born in America must have an equal chance in life."
Appendix "A": Summary of Chapman's theory of the hours of labor from the Queensland Supplementary Submission to the Australian Industrial Relations Commission on the "Reasonable Hours Test Case"
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