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(A Shorter Workweek in the 1980s)

 

OBJECTION #2: WORKERS HAVE CHOSEN TO INCREASE THEIR INCOMES RATHER THAN TO HAVE MORE TIME OFF FROM WORK

CHAPTER 6

 

The average full-time worker in the United States has had little, if any, increase in leisure time since the end of World War II. In fact, considering the increased proportion of American families in which both the husband and wife are employed or of those headed by a single parent, the average free time of adults per family is substantially less than it was a generation ago. If leisure may be regarded as a part of living standards, this unenviable record cast doubt upon the myth of our ever-increasing prosperity.

Economists can hardly deny such trends. They have developed, however, a peculiar explanation for the lack of improvement in this area. Workers, they say, have “chosen” to increase their incomes rather than to have more time off from work. This “trade off” theory - leisure vs. income - has become the conventional view of our times. Those who repeat it in one form or another include businessmen, government officials, economists, even labor leaders. False though the doctrine is, it has the support of Nobel Prize winning economists and other celebrities of the profession. “There is no doubt that a drastic shortening of hours would imply lower real earnings than a full-employment economy is capable of providing at a longer workweek,” wrote Professor Paul Samuelson in his best-selling textbook. Professor Walter Heller has likewise predicted “an absolute reduction in material living standards” if the workweek were reduced to a level such as 26 hours per week.

 

THROWING COLD WATER ON THIS IDEA

A blunt-speaking labor leader gave the shorter-workweek cause an untimely rebuff. Addressing the United Mine workers’ annual convention in 1956, John L. Lewis declared: “The question of the 6-hour day is one of costs ... I think if a convention wants to dedicate itself to a 6-hour day they can get a 6-hour day in the next contract by paying for it, by taking 6 hours’ wages for 6 hours of work. To reduce the shift from 8 to 6 hours would require as a minimum a 25 per cent increase in the cost of production of a ton of coal, and in practical operation it would cost more than that ... These are the facts of life you should take into consideration. Any time the organization as a whole wants to stop eating so much and loaf a little more, we can get a 6-hour day for you.”

Spokesmen for the business community have carried the trade-off theme a step further, dressing it up in libertarian language. In their eyes, the responsibility for having “chosen” to work longer rests with working people themselves. Advocates of the shorter workweek who would decide this issue through legislation are therefore enemies of our economic freedoms. An NAM pamphlet stated: “In a free society, the choice between leisure and productive work is one to be made by the people. Industry has neither the power nor the desire to make that choice for them.” More outspoken still on this point was A.L. Humphrey, president of the Westinghouse Brake Company in the 1920s. Commenting on Henry Ford’s 40-hour week, Mr. Humphrey declared: “I am convinced that the average working man does not want anybody, Mr. Ford or anyone else, to coerce him into curtailing his hours by arbitrary compulsion.”

Officially, the business community has taken a neutral position on the question whether or not the American economy should place greater emphasis upon increasing leisure time. In practice, it has consistently condemned proposals to reduce work time painting a stark picture of their cost. A typical business view was that of George Hagedorn, the NAM’s research director, who testified before the House Committee on Education and Labor in November 1963: “The desire for more leisure and the desire for a higher material standard of living are both legitimate aspirations ... We should remember, however, that there is just so much in the way of productivity gain to be divided. Whatever part of our productivity gain is taken in the form of reduced working time is not available for increasing the flow of goods and services which make up our standard of living - and vice versa. The important thing is that everyone - employers, employees, legislators, and the public - understand that it is a choice. Altruism is no substitute for production, and whenever we reduce our working time we give up some part of the goods and services we might have produced. From the point of view of the individual concerned the trade may be a good one - that is for him to decide - but he cannot have it both ways.“

In academic circles, the discussion has taken the form of analyzing demographic trends. Professors Sar A. Levitan and Richard S. Belous have suggested, for instance, that the factors in society which have helped to keep the workweek long since the 1940s may be eroding, which would make the prospects for shorter hours more favorable. Professor Levitan mentioned some of these to a Congressional subcommittee: a high birth rate and pent-up consumer demand following World War II; the postwar emphasis upon education and health care; “keeping up with, and ahead of, the Joneses”; coping with inflation. Just to remain in place on the treadmill, many American families have had to trade leisure for income,” he testified. But lately: “Evidence indicates that younger workers and females tend to prefer shorter hours to additional income. Since 1975, employment in the United States increased by more than 10 million; the increase included over 5.3 million women and nearly 700,000 teenagers. Coupled with reduced pressure exerted by forces which drive people for more income over leisure, the composition of the work force is shifting in the direction of those who give added weight to leisure.”

The academics are divided as to whether, with a rise in income, workers would choose to seek leisure and forego income or to seek additional income and forego leisure. One school of opinion argues that an “income effect” would take place: Workers would “use the additional money to purchase more leisure time, along with other goods and services.” Another school emphasizes the “substitution effect”: Higher hourly incomes would make leisure time more expensive, and therefore workers would decide to spend more hours on the job. It has been suggested that the “income effect” is dominant among male workers as evidenced by their higher rates of labor-force withdrawal while the “substitution effect” prevails among working women. Whatever the case, both schools are in agreement regarding the “trade off” theory. The experts in academia and nearly everywhere else agree that for workers to seek more free time means to choose a lower income. It is that granitic consensus which needs now to be challenged.

 

THE ALLEGED TRADE OFF BETWEEN INCOME AND LEISURE

There are at least three reasons why the “trade off” theory of income and leisure does not describe the economic facts:

(1) Regardless of their individual preferences, working people are powerless to choose their hours of work. The employment conditions are offered to them on a “take-it-or-leave-it” basis. In no way can the postwar trend in hours or lack of it be attributed to workers’ individual decisions to seek income.

(2) From an economic standpoint, reduced working hours do not necessitate reduced incomes. Indeed, it is possible for workers to have both benefits at the same time. That has been the historical pattern in industrial economies.

(3) Conversely, the decision to throttle shorter hours for the sake of additional production capabilities will not necessarily result in higher living standards for working people.

Regarding the first point, a consultant to the United Automobile Workers, Howard Young, has observed: “As a practical matter, employment hours are rarely subject to bilateral determinations of the employer and employee or even employer and union. Instead, employers generally set the hours ... Even when an employee has the nominally voluntary right to decide about overtime work, there are frequently pressures ... to conform to the employer’s desires - e.g., the impact on future promotion possibilities. Furthermore, while employees may have the right to refuse overtime, they rarely have the right to request or generate overtime; the myth of individuals choosing longer or shorter hours is far from reality.”

This evaluation of the decision-making process which governs hours worked in an automobile factory squares with my own experiences working in an office. Do employed people truly decide the number of hours which they will sell each day, or week, or year, to their employer? Voluntary part-time workers might but the average worker who works full time has very limited control over this aspect of the job. Is that not so? Each person who is employed should ask himself or herself: Am I really free to request a different work schedule if that was what I wanted?

Theoretically, each of us in America is free to make such a request. In practice, the chances that an employer would make a special arrangement with a particular employee which puts him or her on a different work schedule would not be great unless the employee had a respectable reason for asking the favor. (One’s personal desire for more free time is not respectable; it has to be something like illness, child-care responsibilities, or school attendance.) A moment’s reflection would bring to mind several compelling reasons not to raise the issue with one’s employer: To ask for shorter hours would be a tip-off to the employer that employment at his firm may not be your life’s top priority. You are not hungry for pay increases and promotions and may therefore be less than fully motivated. Indeed, you may not be “serious” about working at all but have another career possibility in mind. In this period of intense job competition, exhibited attitudes can make a big difference between who rises to the top and who remains buried in the pack or is slated for the next layoff.

In opinion surveys, American workers have expressed dissatisfaction with the conditions of work. Hours have been a particular target of their resentment. One of the better-known surveys on the subject is the “Quality of Employment” study conducted by the Survey Research Center at the University of Michigan. The latest survey, which was conducted in 1977, covered 2,200 workers employed throughout the United States. It attempted to measure job satisfaction in general and in six specific areas: comfort, challenge, financial rewards, relations with coworkers, resource adequacy, and promotions. Similar surveys were conducted in 1969 and 1973. The 1977 survey found that “over the 8-year period for 1969 to 1977, particularly between 1973 and 1977, the specific satisfactions index exhibited a marked and significant decline whereas the general dissatisfaction index declined slightly but significantly.”

With respect to hours, 71.5% of those surveyed in 1977 reported that it was “difficult to get work hours changed”,”the employer determines overtime and the worker cannot refuse”, 39.6% cited “inconvenient or excessive hours”, 15.9% said that “the employer determines overtime and the worker cannot refuse”, 39.6% had a feeling that “time drags at work”, 55.2% found that they had “inadequate time for leisure activities”, and 14.5% reported “problems with work schedules caused by child care arrangements.” In 1977, 16% of the survey participants mentioned inadequate control of overtime as a problem compared with 4% in 1969. Only 19% in 1977 reported that they had “complete say” or “a lot of say” about “days and hours of work”, compared with 30% who reported such control over “wages and salaries”, and 41% over “how work is done.”

Data from this survey were analyzed for a report on the conflicts between work and family life prepared for the U.S. Department of Labor. The results were reported in the March 1980 issue of Monthly Labor Review. The article disclosed that “a substantial minority of workers living in families experienced conflict between work and family life. These conflicts most often concerned excessive work time, schedules and fatigue and irritability caused by work.” Overall, 10% of the survey participants reported “a lot” of conflict between work and family life, and another 24% reported moderate conflict. The article stated: “Workers who reported ‘somewhat’ or ‘a lot’ of interference between their work and family life were asked how these roles interfered with each other. The three most common responses were ‘excessive work time’ ,’schedule conflicts’, and ‘fatigue and irritability’ ... Half the sample with moderate or severe interference reported excessive time spent at work as a specific problem, and slightly more than a quarter reported incompatibility between their work and family schedules.”

The study sought to identify job characteristics which contributed to conflict with family life. Here again it was reported that ‘the characteristics most strongly and significantly associated with all work-family conflict were (the) number of hours worked; frequent overtime; the work schedule, particularly the afternoon shift; and physically or psychologically demanding work. Having to work with an irregular starting time, having low control over whether one works overtime, and having little flexibility to change one’s work schedule or take time off from work for personal or family matters were also significantly associated with work-family conflict though to a lesser degree ... Interestingly, being self-employed, holding a second job, and time spent on problems experienced in commuting to work were unrelated to conflict.”

The conclusions reached in the Labor department study have been confirmed in a Gallup poll commissioned for the 1980 White House Conference on Families. The Wall Street Journal reported on June 3, 1980: “Many Americans think family life is deteriorating and want changes in work place policies to help remedy the situation, a new Gallup poll indicates. The survey found that while 61% of the people questioned consider family the most important element of their lives, nearly half said family life has gotten worse in the past 15 years ... More than half of all those surveyed favored more flexible working hours to cope with conflicts between work and family. Others favored sick leave if a family member is ill, four-day workweeks and child-care facilities at the work site. The results indicate ‘there’s clearly a desire for a change in the working place,’ said George Gallup, Jr. ... Yet, despite the desire for changes in personnel policies, 73% called business and industry favorable forces in their family lives. Drug and alcohol abuse were most frequently called the factors most harmful to family life.”

Of course, these surveys do not reveal specifically whether Americans would be willing to trade extra income for leisure if such a choice were required. For an answer to that question, we may refer to another survey which was conducted by Fred Best in 1977. Dr. Best’s survey covered 791 employees of Alameda County, California, whose demographic characteristics closely matched those of the total labor force. Suggesting several “equally costly alternatives” in the leisure-income tradeoff, the survey asked participants “whether they would prefer to work more time at their present pay rate and earn proportionately more, work the same amount of time and earn the same, or work less time and earn less.” Best reported that “62.7 percent of the respondents in this study preferred to work the same and earn the same, 16.2 percent wanted to work more and earn more, and 21.1 percent wanted to work less and earn less.”

The question asked in this survey, he noted, was “almost identical” to one in a study administered to a national random sample in 1966 which found that 56 percent preferred to work and earn the same, 34 percent wanted to work more and earn more, and 10 percent wanted less work and pay.” In other words, in the space of ten years there has been a significant shift of opinion in which the number of people who wanted more work and more pay declined and the number who would accept lower pay for shorter hours increased, even though inflation in 1977 was far worse than in 1967.

Still another indication that American workers want leisure is found in the growing percentage who are employed part time voluntarily. Here are people who have “voted with their feet” on this particular question. In 1979, the voluntary part-time workers comprised 13.5% of the civilian work force compared with 10.1% in 1963. This increase has occurred despite the fact that part-time workers earn significantly less per hour than full-time workers and are denied many fringe benefits. In exchange for their lower pay and benefits, voluntary part-time workers have greater personal freedom and more time to participate in family or personal activities.

This is an important exception to the statement made earlier, that individual workers lack the power to choose working hours. Part-time workers, who typically are students or married women, are more likely to have another means of support and are therefore freer to accept or reject the conditions of work that employers offer. They cannot pick their hours any more than full-time workers can; however they do have an influence.

Employers, to attract labor, must offer hours and conditions which are broadly appealing. That is why the concentration of part-time workers and full-time workers on shortened schedules in the emerging, “growth” industries testifies eloquently to the fact that Americans do place a value upon their free time and, if need be, are willing to pay for this by accepting a lower hourly wage. On the other hand, in industries where employment is shrinking, workers must accept whatever conditions the employer sets. Hours, accordingly, tend to be longer.

The second point which was made against the “trade off” theory is that, in fact, such patterns are uncommon. Certainly, individual workers may experience a trade-off between income and leisure. If I quit my job, I would have less income and more leisure. If I took a second job, I would have less leisure and more income. Critics of the shorter workweek are arguing, however, that such a trade-off takes place on a macroeconomic scale. If we as an economy pursued shorter hours, there might be less production and so workers would suffer a loss of real income.

If this theory were correct, one ought to find evidence linking shorter hours with reduced incomes or longer hours with increased incomes. Such evidence might be found in comparisons of pay scales in industries which have longer or shorter hours, or of the gains in real wages in periods of lengthening or decreasing workweeks, or of the wages prevailing in national economies which have differing work schedules. Does this evidence exist? Economists who have bothered to investigate have usually come to a different conclusion.

Their studies cover a wide range of times and places and sectors of industry. Wladimir Woytinsky’s article on working hours in the Encyclopedia of the Social Sciences described European industry prior to World War I: “In Germany, organized labor was fairly successful in the struggle for shorter hours so that before the World War a working day of from 9 to 9 1/2 hours was widespread. But since the working day was regulated mainly by local collective agreements it varied in different districts and occupations according to the strength of labor organizations These agreements reveal a striking connection between the length of the working day and wages: In districts where the shorter day prevailed the workers earned not only more per hour but more per day than elsewhere. Thus, according to statistics for 1905-06, building workers working 11 hours received a daily wage of 3.52 marks and those working 9 hours 5.80 marks; pottery workers working 11 hours received 3.63 marks and those working 9 hours 4.90 marks; metal workers working 10 hours received 3.95 marks and those working 9 hours 4.85 marks. These statistics illustrate the well known connection between lower hours and higher wages; this relation holds not only for the same occupations within one country but also for different occupations and different countries.”

In the United States, a BLS survey of wages and hours in manufacturing, wholesale and retail trade, and other industries, taken in May 1964 and May 1965, revealed much the same pattern. Peter Henle reported in Monthly Labor Review: “For both wholesale and retail trade, and for almost all individual industries for which information is available, the longer hours employees are more heavily concentrated at the lower end of the earnings scale. This same relationship holds for each major section of the country as well as for metropolitan and nonmetropolitan areas ... For each section of the country and for each individual industry for which data are available, the proportion of employees receiving less than $1.00 or $1.25 an hour is higher among employees working 48 and more hours a week than it is for those working only 40 hours. Similarly, a much higher proportion of low-wage than high wage workers work 48 hours or more ... Further evidence on this question is given by a study of employees of motor carriers who are generally not covered by hours provisions of the Fair Labor Standards Act. Wage data for November 1964 show a close correspondence between longer hours and lower pay for a number of specific occupations.”

 

PAUL DOUGLAS’ STUDY OF WAGES AND HOURS

Perhaps the definitive study of this question as it relates to the U.S. economy was that done by Professor Paul Douglas. His findings were published in the book, Real Wages in the United States: 1890-1926. Professor Douglas, later a U.S. Senator from Illinois, was updating the work of a 19th Century French economist, F.S. Simiand, who found, contrary to expectations, “a negative relationship between wages per hour and the number of hours worked” in the French coal-mining industry. Douglas wanted to learn whether that effect still held true.

In three different years - 1890, 1914, and 1926 - Douglas measured the relationship between the hours of work and hourly wages in seventeen different industries. He described the procedure: “The average hourly earnings in cents were taken for each of the industries for the three years ... and were correlated with the average number of hours constituting a full-time week’s work in the respective industries in each of these three years. The coefficients of correlation between the average money earnings per hour in the various industries in each of these years and the length of the standard working week are as follows:

year of data r

1890 -.78
1914 -.80
1926 -.84

It is thus apparent that within a a group of industries at any one time there is a high negative correlation between hourly earnings and hours of work. The industries with relatively high hourly earnings tend to be those with a relatively shorter week than the average, while the industries characterized by a relatively low hourly wage scale tend to be those with a longer than average working week. There seems also to have been a slight tendency for the strength of this negative relationship to increase with time, since r rose from -.78 in 1890 to -.80 in 1914 and -.84 in 1926.”

The coefficients of correlation which Douglas designated by r expresses the change in one variable - weekly hours - for each unit of change in the other variable - hourly earnings. For instance, -.84 means that in a given year for each 1% that hourly wages were higher in one industry than in another its average workweek would likely be 0.84% lower. For instance, if wages in the steel industry in 1926 were 10% higher than in the textile industry in that year - say, $2.20 per hour compared with $2.00 per hour - then the workweek in the steel industry should be 8.4% lower than in textiles - 45.8 hours per week compared with 50.0 hours per week. However, such comparisons pertain only to the ratio between hours and earnings of different industries in a particular year.

In order to determine the trend of wages an hours within a particular industry, it is necessary to analyze data gathered over a period of years. “We can then see whether in those cases where the gain in hourly wages was greater than the average there was a tendency for the hours per week to increase more than the average and, if so, how strong it was,” Douglas explained. Employing this second kind of analysis, he found the coefficients of correlation to be: -.72 for 1914 relative to 1890, and -67 for 1926 relative to 1890. “This indicates a relatively high negative correlation between changes in hourly wages and standard hours of work. When the gain in hourly wages was less than the average, there was a tendency for the hours to fall by less than the average, and when the gain in wages was greater than the average the tendency was for the fall in hours to be greater,” Douglas noted.

Professor Douglas employed several other kinds of analysis to measure “the elasticity of working hours” with respect to wages. The results consistently showed an inverse relationship between working hours and the level of wages paid. Although the coefficients varied, Douglas estimated that overall they averaged between -.1 and -.2 which means that “an increase of 1 per cent in hourly earning would tend (other things being equal) to cause a decrease of from one-tenth to two-tenths of one per cent in the hours normally worked.”

Douglas’ work was updated and his conclusions were confirmed in an unpublished Ph.D. thesis written by T.A. Finegan, a graduate student at the University of Chicago in 1960. In addition, Professor Harold Wilensky of the University of Michigan mentions “time studies for various societies and industries which show that increased productivity is negatively correlated with hours of work; and cross-sectional studies by economists of earnings and hours, which again show a strong negative correlation ... The negative correlation between hours and earnings stands up well (-69) in a multivariate analysis for occupations and industries characterized by large hours variance but not so well elsewhere - e.g., in manufacturing.”

 

THE POVERTY SYNDROME

The simplistic “trade off” theory of hours and wages - the longer the hours, the higher the pay - is not confirmed by any of these studies yet respectable economists continue to teach it with authority and conviction. This shows the intellectual bankruptcy of much of our current economic thinking. It is clear that economies with shorter working hours generally have higher, not lower, standards of living than those with longer hours. Long-hours economies prosper less, not more, for the trade off they think they are making. “No towns were so poor,” said Henry Ford, “as those of England where the people, from children up, worked 15 and 16 hours a day. They were poor because these overworked people soon wore out - they became less and less valuable as workers. Therefore, they earned less and less and could buy less and less.”

We see this pattern today in backward nations such as Egypt which suffer from deep-rooted poverty. A U.N. survey in 1975 found that roughly 20% of the Egyptian work force consists of children who work at menial jobs to supplement their family’s income even though by law the are required to attend school. Such laws are widely ignored because of the parents’ pressing need for this income. The working children are thus captive to a system which enslaves them by legal as well as economic pressures.

A newspaper article told of an 8-year-old girl named Nadia and her 7-year-old brother, Fathy, who emptied out garbage cans in Cairo for a living. “Because of the illegality involved (being absent from school), they earn very little. Fathy and Nadia put in more than 10 hours of work a day. They never take a day off and at the end of the month their boss gives them the equivalent of $7.50.” Working excessively long hours belongs to a poverty syndrome which may be due to lack of economic development, overpopulation, unenlightened labor policies, or other factors. There is not much that the victims themselves can do about it.

In most modern industrial nations, the level of prosperity is equated with per-capita GNP. Lately, this formulation has come under attack as failing adequately to reflect the quality of life. A former president of the European common market has said: “Gross national product in all our member states and also in the US and Japan has been thought of as something sacred. But GNP is diabolical. We must think, instead of our people’s happiness.” If wealth alone were the measure of a nation’s achievement, the people of Iran might not have ousted the Shah whose economic accomplishments were considerable. Instead, they mourned the decline of their religion and brought to power the Ayatollah Khomeini.

While economists will not go so far as to include “things of the spirit” in their definition of living standards, some have suggested that the category of economic well-being be broadened to include besides GNP factors such as the absence of environmental pollution, equality of incomes, and quantity of leisure. A book by Wilfred Beckerman of Oxford University entitled “Measures of Leisure, Equality, and Welfare”, summarized several of the studies which have been done along those lines.

Beckerman’s book includes a study by Professor William Nordhaus and James Tobin of Yale University which seeks to combine leisure with per-capita GNP in a category they call “Measurable Economic Welfare”. In measuring a nation’s progress by this yardstick, the professors first converted the hourly gains in leisure to a monetary standard by applying the average real wage per hour to the number of leisure hours gained. Between two points in time, Measurable Economic Welfare, which was GNP plus its equivalent in leisure, would show a gain which was greater or less than the percentage gain in GNP alone. For our purposes, it is useful to compare the per-capita gains in GNP and in leisure for the various national economies. Figure 6-1 presents the professors’ figures (as updated by Beckerman) for 13 nations including the United States for the period between 1950-52 and 1971-73.

The table shows that the national economies which achieved the greatest percentage gains in GNP also had the greatest improvements in leisure while the nations with the least improvement in leisure showed the least improvement in GNP as well. The Japanese led the list in both categories by a wide margin. West Germany placed third in both. Denmark was the second-place finisher in the area of leisure while Austria occupied a similar position with respect to GNP. The United States, on the other hand, ranked solidly in last place both in improving per-capita GNP and expanding leisure. Canada placed second from the bottom in the leisure category and third from the bottom with respect to GNP. Great Britain had the second-worst record in increasing per-capita GNP and the fourth-worst record in improving leisure Even conceding the dubious claim that per-capita GNP represents a nation’s standard of living, we may be sure that the “trade off” theory of leisure and living standards does not describe the facts. Americans are in fact, sacrificing their leisure for nothing.

      figure 6-1
       
Comparison of Growth Rates of "Measurable Economic Welfare" by Nordhaus-Tobin Method, 1950-52 to 1970-73
       
(annual compound growth rates)
measurable
 
gain in leisure
gain in GNP
economic welfare
Country
per capita
per capita
per capita
 
Austria
3.98
4.88
4.25
Belgium
5.00
3.55
4.39
Canada
3.26
2.43
2.95
Denmark
5.72
3.51
4.50
Finland
3.33
4.29
3.66
France
3.45
4.27
3.85
West Germany
5.66
4.63
5.23
Italy
4.66
4.57
4.61
Japan
7.15
8.76
7.67
Norway
4.06
3.32
3.77
Sweden
4.99
3.18
4.36
U.K.
3.36
2.35
2.95
U.S.A.
1.75
2.16
1.95
 
average
4.34
4.00
4.17

Our third point regarding the “trade off” theory is that to deny workers leisure does not guarantee that the nation’s material standard of living will rise. We have discussed this topic at some length in Chapter 2. Although it is not the purpose here to repeat that discussion, the American people have been treated to such a fumbling show of economic management, handled by experts, that the record of their sorry performance deserves close attention.

 

MISLED BY GOVERNMENT OFFICIALS

To what end and purpose did this nation’s economic policymakers (not its workers) decide to deny a shorter workweek in the 1960s? We poured billions of dollars into the Vietnam war to fight an enemy whose soldiers used rubber from discarded tires for shoes. We created a welfare system on an unparalleled scale. We bankrolled a bureaucracy looking for new ways to manage our lives but which cannot manage even the simplest tasks which it is assigned to do. Many have written of these problems. Politicians have been elected on the promise to do something about them. A government bureaucracy geared to welfare, war, and personal monument building leaves us with a sense of outrage or it leaves us numb.

Outrage is the healthier response so let’s vent our displeasure for just a moment. Better than I could do to conjure up this particular emotion is a column written by Joan Beck of the Chicago Tribune which appeared in my local newspaper on May 20, 1980. She wrote: “Somehow it’s easier to get angry and concerned about 79-cent heads of lettuce and $1.79 pounds of hamburger and $69 pairs of shoes and tiny, tinny $7,000 cars than about that $613.1 billion federal budget for fiscal 1981. But we don’t dare lose our sense of outrage about federal spending. We are being stung, taken, bamboozled, boondoggled, flim-flammed, hoodwinked, misled, exploited, suckered, and robbed by an army of bureaucrats that has swollen out of control. We are being forced to buy more government than most of us can afford (it’ll cost $2,786 for every man, woman, and child of us next year for the federal government alone, or $11,144 for that basic family of four) and more than most of us want. Object to the size of the budget and the first thing the feds always threaten to do is to take away the Saturday mail delivery - a cheap shot aimed to hit every one of us where we live. Yet, there’s billions and billions of dollars of ugly fat in the budget that could be cut without hitting a single vital vein, curtailing defense, or hurting the poor. We now work, on the average, four months and 11 days every year just to earn enough to pay our taxes.”

Ms. Beck then mentions types of government waste which were exposed in a book, Fat City. These include: the $43 billion spent for “printing, processing, and storing federal forms”, the 175 Washington officials who have personal chauffeurs each paid $25,000 a year, the 1,000 persons employed by federal agencies to lobby members of Congress, the $8 billion a year for travel by government officials with or without their wives, the $2 billion for consultants to write largely unread reports, the $10 billion estimated for fraudulent or mistaken payments in programs administered by HEW (recently renamed) and more.

Someone must keep this show on the road - that’s our function. We the people are “demanding” all these government services. The same organization which conducts disastrous military engagements, runs cynical welfare programs, stymies commerce and industry, causes inflation, turns a deaf ear to the problems of unemployed people, taxes away all our income through Mother’s Day, administers a deceitful Social Security program, subdues American Indians, but is subdued by any well-organized and well-financed pressure group, has experts on the payroll who tell us solemnly that a shorter workweek might lower our standard of living. In truth, it might lower theirs.

For selfish institutional reasons, the federal government might oppose any move which would produce more equal incomes and so reduce its revenues under the progressive income-tax schedule. Work sharing has the reputation of spreading the available income among more workers. If that were true, as government strategists believe it is, then a shorter workweek might throw the federal budget farther out of balance. Figure 6-2 shows how Washington stands to lose tax revenues by sharing a fixed amount of income among more workers. (In reality, the shared income would not be fixed but would expand as more people became fully integrated into the economy.) Also, the U.S. Treasury might not take too kindly to proposals which might reduce its windfall revenues from inflation or encourage the desire for a benefit, leisure, which it could not tax, or give new impetus to the barter or underground economy.

      figure 6-2
       
An illustration of how the U.S. Government stands to lose tax revenues if incomes were shared among a wider group of people
       
 
federal
number
total tax
 
taxes per
of
paid by
 
worker
workers
group
 
4 workers each earn $10,000
$2,408
4
$9,632
5 workers each earn $8,000
$1,773
5
$8,865
U.S. Government stands to lose
$767
 
4 workers each earn $20,000
$6,281
4
$25,124
5 workers each earn $16,000
$4,575
5
$22,875
U.S. Government stands to lose
$2,249
 
7 workers each earn $8,000
$1,773
7
$12,410
8 workers each earn $7,000
$1,459
8
$11,672
U.S. Government stands to lose
$738
 
7 workers each earn $24,000
$8,504
7
$59,528
8 workers each earn $21,000
$7,091
8
$56,728
U.S. Government stands to lose
$2,800

So deeply in hock is this government to the Social Security and other programs that, like an embezzler who covers a permanent shortage of cash with renewed theft of each day’s receipts, its financial operatives must take care to maintain an uninterrupted flow of funds and allow no tampering with the system. Therefore, the people cannot be allowed to choose between income and leisure. They must continue to choose income. Our national security depends on it.

Individually, the President, members of Congress, federal judges, and even some economists, are among the finest people you would ever meet. Collectively, they run a system which is heading out of control. The free-enterprise system as it operates today is not much better. Reflecting perhaps its inadequate provision of free time, this economy specializes in dispensing instant conveniences or pick-me-ups to meet each moment’s needs.

Those images that flicker by on the television screen tell us which products and brand names to buy. Walking down the aisles of a department store, we can use our credit cards to purchase whatever goods catch the eye. If we have lost our usual pep, a cup of coffee or a soft drink may put the bounce back into our lives. If a headache strikes, pull out a bottle of your favorite nonprescription drug to relieve this temporary symptom of stress.

Why waste time when enjoyment may be had? Light up a cigarette! Eat a candy bar! Turn up the radio! Go see a doctor or a shrink if you lose control! Let yourself go in a dramatic religious conversion! Submit to love with a passing stranger! Become a full-fledged drug addict! Take up art! Race cars! Do all this in your own way; but don’t neglect to show up on time for work, obey the laws, and pay your taxes.

Without adequate free time, the consumer economy is reduced to feverish nonsense. A contemporary American philosopher, Eric Hofer, has written: ”The superficiality of the American is the result of his hustling. It needs leisure to think things out; it needs leisure to mature. People in a hurry cannot think, cannot grow, nor can they decay. They are preserved in a state of perpetual puerility.”

Some preach that the American tradition of hard work provides an ethical bulwark against decadence and corruption. To promote their self-interested views, they will resort to considerable fabrication of the record. Our American forbearers who built this country were rather more sensible about work than one might suppose. Thoreau commented: “It would be glorious to see mankind at leisure for once. It is nothing but work, work, work. I cannot easily buy a blank book to write thoughts in; they are commonly ruled for dollars and cents.” Abraham Lincoln confessed: “My father taught me to work but not to love it. I never did like to work, and I don’t deny it. I’d rather read, tell stories, crack jokes, talk, laugh - anything but work.”

 

WHY THE “TRADE OFF” THEORY FAILS

The “trade off” theory of income and leisure assumes that the extra hours of work will become translated into extra units of useful production. Somehow this will filter backdown to workers in the form of higher real wages and living standards. This theory has several questionable assumptions. Among its problems are the following:

(1) Longer hours do not translate proportionately into higher production. A part of it is lost through lower productivity and increased unemployment.

(2) Not all the additional production is useful.

(3) Workers may not receive their proportionate share back. Unearned income such as interest, dividends, and pensions, has been rising faster than wages.

(4) Even if all of the additional production were returned to workers in the form of higher wages, there would have to be a fairly even distribution of incomes to speak of “higher average living standards” as generally understood.

The term “higher average living standards” implies that the lot of the average man or woman in society has been improved. More goods and services are being distributed to working people. Suppose, however, that the bulk of those additional goods and services went to the wealthier workers and that the lower-income workers received little benefit from such gains. In that case, dollar for dollar those goods and services would have less marginal utility than if the poorer workers received their full share. Society’s aggregate satisfaction would be less.

Indeed, as the U.S. economy has developed during the past ten or fifteen years, there has not been a broad-based rise in real incomes. A Wall Street Journal editorial which appeared on July 3, 1979 pointed out the lamentable fact that average spendable weekly earnings were $6 less than at their peak in 1973 - and that was before the latest recession. The average job, it noted, was generating less purchasing power than in 1969. The U.S. economy was at the 1964 level in terms of real wages, and the current trend was down.

Furthermore, those gains which the American economy has managed to achieve have gone mainly to the higher-income workers while a significant part of the population lives in poverty. Yes, there are still some elderly Americans who have no pension and no Social Security. There are more than a few working women trying to raise a family on a woman’s wage. There are young men and women who may belong to a racial and ethnic minority and are thought unqualified for a job. There are plenty of others, too, who have fallen through the economic cracks and never were discussed on television. The U.S. economy may be gushing with prosperity; yet, if persons such as these comprise any significant part of the population, can “average living standards” be said to be rising?

The record shows that the salaries and wages of male workers in the United States grew progressively less equal in the period between 1958 and 1977. The earnings of female workers were less equal still than for the men although the trend was static. A n article by Peter Henle and Paul Ryscavage in Monthly Labor Review entitled “The Distribution of Earned Income among Men and Women: 1958-77”, documents this phenomenon.

The evidence of the unequal incomes was presented in the form of a “Gini index” for various kinds of workers. The Gini index, developed by statistician Corrado Gini, measures the extent of deviation of distributed income from a line representing perfect equality. The higher the index number, the less equal the distribution A lower number indicates more equal incomes.

    figure 6-3
     
Gini Index of Earnings Distribution for U.S. Male and Female Workers, 1958 to 1977
     
year
males, all workers
females, all workers
     
1958
.399
.466
1959
.398
.470
1960
.411
.465
1961
.419
.480
1962
.410
.470
1963
.406
.468
1964
.406
.468
1965
n/a
n/a
1966
.406
.462
1967
.409
.463
1968
.410
.460
1969
.417
.476
1970
.423
.483
1971
.428
.475
1972
.431
.475
1973
.427
.478
1974
.433
.470
1975
.434
.467
1976
.438
.469
1977
.439
.466
 
median income, 1977
$11,037
$4,674

In figure 6-3, the Gini index is presented each year for all male worker and all female workers in the United States for the period between 1958 and 1977. Those who find this index incomprehensible may be enlightened by the fact that between 1958 and 1977 the income of male workers in the 20th percentile of earnings distribution increased by 130.6% (from $1,422 per year to $3,279 per year) while the income of male workers in the 80th percentile increased by 206.7% (from $6,141 per year to $18,832 per year). Incomes grew especially less equal among blue-collar worker such as craftsmen and operatives but not so much among farm managers and laborers and in the clerical occupations. Interestingly the article disclosed that “the 1968-73 period appears to show the greatest shift towards inequality.” This, of course, was the time when the effects of President Johnson’s “War on Poverty” were being felt.

We need another theory to encompass the facts. The theory which inspires welfare programs is inadequate and so is the theory that free-enterprise capitalism will consistently bring higher living standards and more equal incomes. Those hard-working Americans who thought they were trading leisure for higher incomes have been grandly disappointed. Living standards did not rise so much. Something else happened which was less desirable. That, like it or not, is called “labor displacement”.

Really, it is not so hard to explain what has happened: As productivity rises, the same number of workers is able to produce a greater volume of output; or, alternatively, a smaller number of workers can produce the same output. The result is that the proportion of employed workers to the volume of production steadily shrinks.

That is the trouble with the idea that stimulating the economy is the way to solve unemployment. The economy may be stimulated and expanded as much as anyone would want and yet it may fail to create enough jobs. Although output expands, increased productivity may cover the extra work so that employers would not have to hire any more workers. From a distribution standpoint, all the additional wealth generated from this production would become concentrated in the hands of proportionately fewer workers who have retained their jobs They would receive their regular pay increases to the extent that their employer could afford it, And likely he could afford it.

On the other hand, the people who have not found a job already would be frozen out. Long waiting lists would develop for those few “real” jobs which open up. A growing number of persons would become superfluous to the economy - not through lack of initiative or job-related ability but simply because they did not happen to be in the right place at the right time.

 

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