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Reducing Working Hours No Panacea For Unemployment

Legislative proposals to cut working hours and thereby boost employment are unlikely to provide the large employment gains their advocates promise. Moreover, such “work-spreading” proposals might reduce productivity and output, and could even decrease employment, says Federal Reserve Bank of Cleveland Economist Terry Fitzgerald.

Writing in the Bank’s Economic Commentary, Fitzgerald says that work-spreading proposals are motivated by the fact that millions of people are unemployed at the same time that millions of others work more than the standard 40 hours. If, for example, the number of hours worked in the economy remained unchanged but workers were restricted to a 40-hour week, the hours left unworked by the 33.6 million Americans who put in more than 40 hours per week in March 1992 would have created enough new 40-hour jobs to put all of the 9.7 million unemployed to work.

However, Fitzgerald is skeptical of the assumption implicit in work-spreading proposals that an hour worked is an hour worked, regardless of who does the work. If those putting in long hours are plumbers, reducing their hours would not create jobs for unemployed accountants. Unfortunately, unemployed workers as a group possess skills notably different from those of people working long hours. Fitzgerald says that, given this mismatch, a policy that succeeded in reducing the workweek might reduce productivity and output.

Fitzgerald also illustrates how mandating that an overtime premium be paid after 30 hours, instead of the current 40 hours, could actually cause an employer to reduce his work force. In addition, he points out that Germany, Japan, France, and the United Kingdom, which have significantly reduced their workweeks since 1960, now have smaller shares of their populations employed, while the United States, which has increased its workweek, now has a larger share of its population employed.

Fitzgerald concludes that despite its intuitive appeal, cutting work hours to boost employment is unlikely to yield beneficial outcomes.

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