Tuesday, March 29, 2005

What would Bastiat say? Part II

"Liberté, egalité...pfft, je voulez seulement le 35-heure semaine!"

Last week I noted that France is finally terminating its 35-hour work week. I like using that particular verb, because to me it implies killing that madness, not just ending it. Russell Roberts at Cafe Hayek has a terrific explanation of why a cap on maximum working hours is doomed to fail:
Suppose you want to create jobs in your society. Does it seem logical that to create more jobs, you need to restrict the effort of the people who already have jobs? Well, sort of. If it currently takes 100 people to do a certain task, then cutting their work effort in half would then require 200 people to get the job done.

The logic at first glance seems pretty appealing. On a certain level, it seems undeniable. Yes, there might be problems in monitoring how hard people work. But you can see the surface appeal of the basic proposition. It's just basic arithmetic. Half of 200 is 100.
Read the rest, it's really a wonderful, down-to-earth explanation. It's all about what I think is the real I word in economics: incentive. Incentive is why the 1990 luxury tax actually lost net revenue. Oh, I'm sure the Joint Tax Commission tried to account for some reduced purchases of expensive cars, boats and jewelry, but even so, they clearly underestimated the effect. Incentive is why you can never assume that you can change one piece of public policy, and everything else will stay the same. As Dr. Roberts said further:
What seemed so obvious at first to be undeniably true because of arithmetic—cutting the amount of work effort in half would seem to require doubling the number of workers—actually turns out to be false. So what would you call this fallacy? The arithmetic fallacy. Or maybe the vertical demand curve fallacy. Or maybe the Ceteris isn't Paribus Fallacy.
But even if all else were equal, a cap on the work week wouldn't create employment anyway. I once again ask my favorite question in all economics: what would Bastiat say? Let me take a stab at it, paraphrasing "What Is Seen" (with all due and profuse apologies):

"Well, then, suppose I hire seven men to dig a ditch on my land. It will be completed in a week if each works 40 hours. Just as I conclude this agreement, the legislature decrees no man may work more than 35 hours, regardless that he is willing. My original contract is broken, and one of two things must happen: I must hire an eighth man so that my ditch is dug in the planned week, or using those seven men, it will take one-seventh more time to dig my ditch. On what basis do you dare to affirm that this created any employment? Do you not see that it is only a simple transfer of labor? Since I must have my ditch dug in a week, an eighth man has a new job, it is true; but now seven men have each lost five hours of labor, and this is just as true. The eighth man may now labor for 35 hours, but the original seven men have together lost those 35 hours. All that one can say is that the eighth man with a job is what is seen; the seven men who have lost labor are what is not seen."

Let's imagine I'm a shop owner who's hired a few people. (I've helped a family member manage a retail store and know all about needing additional help.) If they're suddenly legislated to 35-hour weeks instead of the 40 hours I need from them, I'll have to hire someone part-time for 15 hours. But just one person will still require more administrative overhead: I'd have to spend more time on that person's payroll and tax records, not to mention determining when everyone else would work. So as Bastiat might tell us is a best case scenario, there's no increase in labor, only a transfer. As a shopkeeper in the real world might tell us, there's no increase in labor, and he loses time attending to paperwork for the new employee.

Update: I noticed I was wrong in the extra time required; it's one-seventh more, not one-eighth. Let me also add that there are costs merely from enforcing this cap on working hours, not just to government, but to employers too. Many companies in France have security guards to check people's briefcases and bags on their way out, and the guards naturally cost money to employ. Maybe some guards are merely moonlighting; they need the part-time income to compensate for losing hours at their main jobs.

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