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Economic Fallacies: Is It Time to Work More, or Less?

This opinion piece first appeared in The Guardian on January 10, 2012

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.

 

Juliet Schor is a Professor of Sociology at Boston College and the author of True Wealth. She is a co-founder and co-chair of the Board at the Center for a New American Dream. 

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Comments

A very interesting point. The logical part of me believes cutting labor hours would be extremely detrimental to those who are already impoverished. Undoubtedly a larger labor force does result in lower pay rates. The flip side of this is that corporations in turn yield larger profits (cost goes down net income goes up). Therefore as a society we have instuted minimum wage along with overtime. I don’t really believe it would be possible, but why not increase minimum wage as well as shorten overtime in order to combat the dilemmas that coincide with cutting labor hours.

Posted by Tyler at March 28, 2012 at 11:16am

It makes sense that cutting working hours will increase productivity, but what about families who make ends meet by working overtime? Even if cutting working hours means an increase in employment there will always be people who will need overtime or more working hours to get by. It is hard to find a feasible way to decrease working hours and keep pay the same, but if it could be done i think the increase in leisure time would lead to an increase in working productivity.

Posted by Jeff at March 27, 2012 at 12:55pm

Definitely work less. Many Americans have shared the culture of work more so you make more. Although making more money sounds great, thee happiness you gain from using our money usually isnt as great as the stress and hardship that we experience from earning that money. Many European countries have been doing less work for a long time, and they are generally happier.

Posted by Jon at March 27, 2012 at 1:33am

Very interesting article; I feel like those who are employed at this time are generally over-worked (not in all cases), and feel the need to work more. I think the the value of “working” is not maximized when a person’s thought process is constantly thinking of “work.”

Posted by Rob at March 26, 2012 at 8:10pm

Its not possible to change the norm of more is better in today society. If you go to your co-workers and tell them work less is actually good for you, he/she may just think you are idiot. We’ve been brianwash by people surrounding us that think that everything had no limit, the more it is the better you are than anybody else. I thinks this is what pushing us work hard everyday and make us greed at the same times. The ideaology is neither good or bad, it depend on how you use them

Posted by Kenny H. at March 26, 2012 at 3:18pm

This article is the ideal structure for a fantasized economy of happy people who are content by sufficient need but definitely not in the capitalistic/consumer economy of our society of never ending greed. If someone were to cut weekly hours of labor they would find themselves lost and lagging in the fuel of life, money, thus causing unhappiness.

Posted by Philip at March 26, 2012 at 2:36pm

I think this article has an interesting point, but this day in age it is simply not possible for many people to reduce their hours when many are not getting by with what they already have. We are in a society where more is more and I do not see that changing anytime soon.

Posted by etsanta at March 23, 2012 at 3:23pm

This article is interesting, it brings up a lot of good points, but I think people would suffer with the cut in hours. If we could figure a way to reduce this, then I think this is a really good argument.

Posted by Nicole F at March 21, 2012 at 2:12pm

I think that it is definitely time to work less. If we truly want to overturn the current capitalist system, as I and many others wish to do, we can no longer conform to the rules of the system. Instead of working at a job you hate and wasting your life away as a slave to the system, choose instead to spend your time convincing everyone you know to spend less time and working towards creating a more prosperous world for every one!!!!!

Posted by Anniina Gregg at March 18, 2012 at 11:28am

See also from Sustainability: Science, Practice, & Policy: “A Society Where Everyone Works, But Not Very Much”
http://ssppjournal.blogspot.com/2012/02/society-where-everyone-works-but-not.html

Posted by Sustainability: Science, Practice, & Policy at February 29, 2012 at 8:20am

Do you mean a reduction in hours worked where by a salaried worker only works 40 hours instead of 50? Or a national cap of 35 without any unpaid overtime?

Posted by Davis at February 15, 2012 at 8:46pm

What is the OECD? It is not clear from context.

Posted by Christyna at January 24, 2012 at 10:58pm

So, how will the people who are scraping by with their current hours get by with a reduction?

Posted by George at January 18, 2012 at 11:54am

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