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The New Overtime Income Threshold Could be Only the Beginning
by William McGaughey
When President Obama announced in late June that his administration was proposing to raise the earnings threshold for overtime from $455 to $970 per week, it was explained as a way to increase income for the middle class. Senator Charles Shumer said: “This is the middle-class equivalent to raising the minimum wage.”
The growing income disparity between high-wage Americans and low- wage or middle-income workers has become a preoccupation of many who are politically left of center. Proposed remedies often include increases in the minimum wage. However, this is a government-driven solution. Obama’s move is also government-driven, of course, but potentially it can achieve the desired end more by unleashing market forces than by mandating wage outcomes.
Here is what I mean: Labor is defined in terms of worker-hours. Its quantity is calculated by multiplying employment by average work hours. The change in the overtime threshold rules will tend to reduce average hours because employers will now be required to pay time-and-one-half wages if they work the newly covered employees more than 40 hours a week. Predictably, most employers will reduce weekly hours to forty to avoid this expense. The general effect will be to reduce the average hours of work and therefore labor supply. If the demand for labor holds steady, wage levels will tend to increase by the law of supply and demand. That’s how the free market works.
We are talking primarily about middle-income employees who work in the range of 40 to 50 or more hours a week and are not paid overtime. Some five million American workers may fall into that category. The general interpretation has been to suppose that such employees would receive a wage increase under the new rules because employers would have to pay them time-and-a half. But that assumes these workers would be working more than forty hours a week. The original purpose of the Fair Labor Standards Act was not to enrich workers through overtime pay but to provide an incentive for employers not to pay overtime because they kept weekly hours at or below the standard workweek.
The result could go either way. After the rules went into effect, some employers might stubbornly keep requiring overtime work which would now be paid at the higher hourly rate. Some may boost employee income above the new threshold to avoid the regulations. Others - probably a larger percentage - would reduce the workweeks of the previously long-hours employees to forty hours to avoid the extra cost. If their present work force could handle the same amount of work as before working the standard number of weekly hours, the employer would bear no additional cost. In some cases, however, the employer might be forced to hire additional people to handle the work as weekly hours came down; and that would involve additional cost. The additional cost could be met by higher prices which would not necessarily mean loss of sales or market share if all the competing firms were operating under the same federally-imposed overtime rules.
Even if the employee did not receive overtime pay for working forty or fewer hours per week, he or she would receive a pay increase because market forces would tend to drive up wages as the labor supply shrank. It is the balance between supply and demand that sets the price. If the demand for labor held steady or increased as labor supply shrank, the price of labor would tend to rise. This requires no governmental mechanism to ensure an increased price. It is simply that employers would have to pay the market rate for labor if they might not be able to find people to work for them at a lower rate of pay. Alternatively, some of their existing employees might leave for better opportunities if they kept wages too low.
Under this scenario, the demand for labor would have to hold steady or increase for wages to rise. One element in consumer demand is wages to support spending. The other element is the desire to buy something because it satisfies a want or need in life. The genius of Henry Ford was not only to build low-priced cars but to perceive that workers had to have adequate leisure time to want to buy cars. He himself observed that “a workman would have little use for an automobile if he had to be in the shops from dawn until dusk.”
In a healthy economy, there is, then, a balance between production and consumption in which wages and leisure support consumption while the same people work to provide society’s goods and services. “[I]t is the influence on consumption which makes the short day and the short week so necessary,” Henry Ford said. “The people who consume the bulk of goods are the people who make them. That is a fact we must never forget - that is the secret of our prosperity.”
This is how the labor market is supposed to work. Actually, it does not; for the U.S. business community and its allies in government have conspired to remove the constraints upon labor supply that would make its price rise with shortages of labor. If our national economy were a closed system, then wages would tend to rise as shorter work hours reduced labor supply. However, it is not a closed system because employers have the option of increasing labor supply by moving production abroad. It is the free-trade regime that allows outsourcing of production to take place without penalty so that domestic wages are kept low by competition with foreign workers.
Another sieve-like mechanism is the importation of foreign-born labor, legal or illegal, to compete with U.S. workers for job opportunities. This increase in the work force supporting production for the U.S. market would also offset and negate the wage-increasing effect of shorter hours.
There is something else at play in the economy. American workers are threatened not only by foreigners capable of doing work but, more importantly, by “labor-saving” technology. Machines can handle some of the production that human workers do so that these workers are not needed, at least not for so many hours.
The labor market is chronically out of balance causing wages to be kept low. Year-to-year increases in labor productivity have reduced the demand for human labor. Labor productivity, defined as output per worker-hour, has risen by more than four times since 1947 in the nonfarm business sector. That means, theoretically, that the same amount of output could be produced by the same number of workers if they each worked one quarter the number of hours in a given time period.
The classic response to mechanized production was to reduce working hours. It was Samuel Gompers, first president of the American Federation of Labor, who said: “So long as one man seeks employment and cannot find it, the hours of labor are too long.”
However, Americans today are overworked. The rapid increases in labor productivity could allow people to enjoy the same real standard of living as presently if they worked far fewer hours in a week or a year. The political authorities, to date, have not allowed this.
Let’s look at the record.
Ewan Clague, a long-time commissioner of the Bureau of Labor Statistics in the U.S. Department of Labor, estimated that American workers on average worked 68 hours a week in 1860. This came down to 64 hours in 1880, 60.2 hours in 1900, 55.1 hours in 1910, 49.7 hours in 1920, 45.9 hours in 1930, 44.0 hours in 1940, 42.5 hours in 1950, and 40.8 hours in 1960. Working hours were being reduced quickly in the first three decades of the 20th century. There was also progress between 1930 and 1960 although not as much.
Now let us look at the recent record. The U.S. Bureau of Labor Statistics, relying upon data from the Census bureau, has published information on the average workweeks of nonsupervisory persons in the nonfarm economy. It reports that the average weekly hours of work, which were 39.8 hours in 1950, dropped to 38.6 hours in 1960, 37.1 hours in 1970, 35.3 hours in 1980, 34.3 hours in 1990, again 34.3 hours in 2000, and 33.9 hours in 2006. This is a reduction of about 6 hours in more than 50 years.
It gets even worse. A study by the Economic Policy Institute, based upon data from the Current Population Survey, found that the annual hours worked by Americans, on average, increased from 1,652 hours in 1975 to 1,836 hours in 2014. The failure to reduce working hours has put working people at a disadvantage in the labor market because mechanization of production or business operations has significantly reduced the demand for labor. This is the basic problem that working Americans face.
The labor movement arose in the struggle for, first, the ten-hour day and, then, the eight-hour day, whose defining moment was the famous “May Day” strike of 1886. Agitation for the eight-hour day continued into the early decades of the 20th century in such events as the mine workers’ strike in Colorado and the steel workers’ strike of 1919.
When the Great Depression of the 1930s began, one of the first responses was to propose shorter working hours. The U.S. Senate actually passed a 30-hour workweek bill sponsored by Senator Hugo Black in 1933 but the incoming Roosevelt administration would not support it and the measure died. So did the shorter-workweek movement.
There were several reasons for this. First, the Great Depression, a phenomenon of the business cycle, brought a sharp decline in production and business activity because of inadequate demand. Critics of the shorter-workweek approach criticized it for being “defeatist”. The problem, they said, was insufficient production and demand. “Sharing the misery” through shorter hours would get us nowhere.
A second problem was that economic ideologies and perhaps the vested interest of government officials opposed this approach. Academic economists, including Leon Keyserling, the first chair of the President’s Council of Economic Advisers, favored government-centric solutions to unemployment. Paul Samuelson argued that the shorter-workweek approach was based on a fallacy that he called “the lump of labor fallacy” which was never explicitly defined or explained. When World War II seemed to cure unemployment permanently, government policy makers favored military spending as a way to boost and maintain the number of jobs. This policy was articulated in NSC-68, promulgated at the time of the Korean war.
A third problem, however, was that organized labor had given up on its traditional goal of cutting hours. William Green of the AFL traded support of Senator Black’s bill for the right of unions to organize. Even more significant, perhaps, was a feature in the Fair Labor Standards Act. Union members now wanted to work longer hours to receive the higher overtime pay more than they wanted shorter hours.
The debate over work time continued for several more decades with the opponents of shorter hours gradually gaining the upper hand. Business remained staunchly opposed to shorter hours. Government, controlled by financial interests and the military-industrial complex, tended increasingly to side with business. The labor movement, having repudiated the cause that gave it birth, gave, at best, lukewarm support to the idea. Except for public-sector employees, its membership has dwindled. Consequently, there is no influential group that supports the policy of shortening work time any more.
Even so, Roosevelt’s “New Deal” has given Americans a mechanism for reducing work hours if they care to use it. This is, of course, the Fair Labor Standards Act. Its legislation from 1938 remains in place as a powerful determinant of wages and hours.
And now, another period of grave economic uncertainty is at hand. Government-centric approaches to job-creation have come in conflict with ballooning budget deficits and legislative gridlock. Educational panaceas have pretty much run their course. The robot revolution threatens employment of all types and at all levels of sophistication. Maybe it’s time, high time, to consider once again a policy which served previous generations of Americans well but which has become submerged and eventually lost in the politics of the past half century: the option of shortening work time, permanently and to a significant degree.
A key provision of the Fair Labor Standards Act is found in U.S Code, Title 29, Chapter 8, section 209, which states:
“(a) Employees engaged in interstate commerce; additional applicability to employees pursuant to subsequent amendatory provisions
(1) Except as otherwise provided in this section, no employer shall employ any of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise engaged in commerce or in the production of goods for commerce, for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.”
There are several elements here. (1) The reference to (interstate) commerce is meant to meet the Constitutional requirement allowing Congress to pass such a law. It has no practical significance in terms of our discussion. (2) This law creates a standard workweek of forty hours which means that employers will have to pay overtime for work longer than that in a week. (3) The overtime rate of pay is declared to be one-and-one-half times the employee’s regular pay. Employers who work more hours in a week than the standard workweek (40 hours) are required to receive higher pay for those excess hours.
The Fair Labor Standards Act could be amended in several ways to shorten work time. First, the standard workweek could be reduced from forty hours to thirty-five hours, thirty-two hours, or another number of hours. Second, the rate of overtime pay could be increased from time-and-a-half to double-time pay or to another rate, if need be. All Congress needs to do is strike “forty hours” and substitute “thirty-two hours” in the amended law and/or change the rate of overtime pay.
It might be better to shoot for a four-day, thirty-two hour workweek, as opposed to a shorter workday, for two reasons: (1) In the past seventy-five years since the Fair Labor Standards Act was passed, the physically less demanding “white collar” work has increased relative to blue-collar work so that it is less urgent to give workers relief from the demands of daily labor. (2) More workers today commute long distances from their home to work. If we cut a day of work from the workweek, that time and expense will be saved. Moreover, it becomes possible for employers to stagger the extra day off so that traffic congestion in urban areas is reduced.
Therefore, a concrete proposal to implement a shorter workweek would be for Congress to amend the Fair Labor Standards Act, and for the President to sign into law, a bill that would reduce the standard workweek from 40 hours to 32 hours. A thirty-two hour workweek lends itself to four working days of eight hours each. Either the change would go into effect immediately or, following the example of the Fair Labor Standards Act of 1938, it would take place in stages - for instance, a 36-hour workweek might become effective a year after passage of the law; a 34-hour week, a year after that; and a 32-hour week, another year after that. Either way, the workweek would be reduced according to a firm time table.
With respect to changing overtime pay, there need not be a change from the time-and-a-half rate unless this proves to be an insufficient incentive for employers to reduce their weekly work schedule from 40 to 32 hours. If the fixed cost of labor or other considerations make the present rate of overtime pay ineffective as a deterrent, then a higher rate of penalty might be considered. But it is not clear at this point that such a change is needed.
However, I think that the Fair Labor Standards Act has a significant defect that needs to be corrected before it will effectively reduce hours. That is the provision that the extra half-time pay in raising the overtime rate from straight-time to time-and-a half be paid to the employee who works overtime. Overtime pay was supposed to be a disincentive to scheduling longer hours, not an incentive to seek those extra hours. As it is, many workers want overtime work because of the higher pay. If we really want to reduce hours, the longer hours need to become disagreeable to all parties concerned.
The quest of higher overtime pay instead of shorter work hours has wrecked the labor movement which once fought fiercely for a shorter work day. It has fostered a spirit of selfishness instead of solidarity with the rest of society. Admittedly, there are financial advantages to working overtime, but there is also the possibility that chronic overtime will depress the regular pay rate which employers control. Workers may accept a pay cut if they have regular opportunities for overtime. All in all, it is a bad proposition.
An alternative is to amend the Fair Labor Standards Act so that the extra half-time pay goes to the government. No one, employer or employee, wants to pay the government. Overtime will therefore neither be offered or accepted except in unusual circumstances. However, the money collected from this source might go into a fund to stabilize wages as working hours are reduced.
Quite frankly, this is politically impossible. But if overtime work is not effectively deterred, then working hours will not be reduced; and neither will the supply of labor. That means that wages will be stuck in a long-term holding pattern like what we currently experience. The current system of paying the overtime premium to the employee is a poison pill.
Finally, we come to another significant defect in the law which pertains to exempt employees. It is this defect that the Obama Administration’s proposed change in the overtime-pay threshold is meant to address.
Many exemptions are written into the Fair Labor Standards Act under Section 13(a)1 - . most notably, for persons who are “bona fide executive, administrative, and professional” or “outside sales” employees. The U.S. Department of Labor sets the eligibility rules.
The Bush administration in 2004 simplified the process in providing that salaried workers who made less than $23,660 were automatically eligible for time-and-a-half pay under the federal law. They currently comprise about 11 percent the salaried workers.
The problem is that inflation has eroded the dollar-based threshold that used to exist. Nick Hanauer, a Seattle billionaire, has pointed out that the salary threshold would have to be raised to $69,000 a year to restore the situation that existed in 1975 in terms of constant dollars. President Obama has instead proposed to raise it to $50,440. However, some eligible workers would still be exempt from the rules if they can be considered executive, administrative, or professional employees by virtue of their job duties.
After the proposed rules are published in the Federal Register, the public has 60 days to offer comments. After reviewing the comments, the Obama administration will issue the final rules. President Obama has the authority to make these changes by executive order instead of seeking legislation from Congress. He has said he will do just that.
Of all the amendments that might be made to the Fair Labor Standards Act, this one has the distinct advantage of something actually happening. Changes in working hours will at last become reality for an estimated 5 million people. This widely shared experienced combined with continuing challenges to job security for a much larger group of people will put work-time issues on the front burner of public policy. From there, anything becomes possible.
It is important to realize that the free market will have a greater economic impact than people may realize. We are used to the government ordering one or another thing to happen. In this case, however, a particular law or regulation pertaining to work hours will have major though unpredictable consequences. All depends upon how individual employers and employees collectively decide to respond to the changes.
How, for instance, would income be affected? Americans have been conditioned to believe that shorter work hours mean lower wages, at least on a weekly basis. Many people are so strapped financially that they would never think of supporting a scheme to work less time. How could they then make ends meet if they cannot work a full schedule of hours?
The reason for such a mentality is that shorter work hours are considered mainly during recessions when “work sharing” becomes discussed. During cyclical downturns, there is insufficient consumer demand to warrant steady production and full employment. Naturally wages will suffer during such times. Work sharing will be offered in the spirit of sacrificing for others.
However, the reason to cut working hours is not so much to share resources during hard times as to offset the labor-displacing effect of improved productivity as technology becomes substituted for human labor. Labor productivity steadily improves during hard and prosperous times alike. Working hours should sometimes be cut when times are good. Then people would not see this as something associated exclusively with recessions.
Another negative association has been created by Obamacare. The law requires businesses that work an employee more than 30 hours a week to provide employee health-insurance coverage. Many businesses evade that requirement by cutting the employee’s work to a level below thirty hours. If the employee needs income commensurate with a forty-hour week, he or she must sometimes take another job. The reduction in hours is therefore unwelcome. The shorter-workweek idea only works in relation to income if it carried out on a broad scale over a long period of time. That way, labor supply can be affected enough to maintain incomes.
Back in the day when Americans had more experience with shortened work hours, the beneficial effects were better understood. University of Chicago economist, Paul Douglas, who later served in the U.S. Senate, studied the impact of hours changes upon income. Confirming the “Simiand effect” (named after a French economist who studied the coal industry), he found a positive correlation between wages and reduced hours. In other words, industries that had relatively short hours also had relatively high wages. This was the conclusion reached in Douglas’ book, Real Wages in the United States, 1890-1926. It was a time when work hours were steadily being reduced.
Since we Americans have recently had little experience with long-term reductions in work hours, academic economists have become phobic on the subject. They are convinced that the idea of shorter hours is defeated by a “lump-of-labor fallacy”, whatever that might be. Almost unnoticed, the rest of the world has caught up with our standards as an industrial society. In the case of Europeans, foreign governments have gone well beyond us in providing leisure for working people. We are conditioned to take pride in our relatively backwardness.
There is much misunderstanding about economic matters in this country. For example, a leading contender for President, Jeb Bush, recently said: “people need to work longer hours and, through their productivity, gain more income for their families.” Au contraire, productivity gains, while they may increase income for business owners, displace labor; and displaced labor means some people will be thrown out of income-producing work.
What people do not realize is that much of the work done in contemporary society contributes little or nothing to human well being. By and large, we are no longer in the business of producing food or even automobiles, but in the business of incarcerating people, waging wars in other people’s countries, prescribing pills for any and all ailments, educating young people for nonexistent jobs, and sending the elderly to casinos. No judgment is ever made of the usefulness of these activities; one is as good as another when it comes to calculating Gross Domestic Product.
I would suggest that Americans would be just as prosperous or materially satisfied if they did not do so much work of this sort. If we worked four or even three days a week to produce what we truly need and leave the rest undone, we would be just as prosperous. We do not need all these wars, incarcerations, foreclosures, bureaucratic rules and regulations, and educational certificates. The day is at hand when machines supplemented by human labor can produce all we need. Give us humans an extra day or two of leisure to pursue what we ourselves freely choose.
Still, I worry about the demanding interest groups whose recent gain in employment and share of Gross Domestic Product have come at the expense of productive enterprise. Can we assume that, if work hours are cut and workers are again needed in agriculture, manufacturing, and other useful occupations, resources will cease to be required by the “necessary evils”? Perhaps not. I suspect that the switch to a saner economy will not come without a struggle.
The present economy has “grown” into certain areas of enterprise that may not let go even after they are no longer needed for employment reasons. Without precedent, government action may then be needed to prevent these less wholesome interests from strangling our imagined economy of leisure in its cradle. Those holding the money power will not want their privileged position taken away. And since they currently control the government, government officials may be reluctant to permit a better and healthier society to emerge even if it were possible.
At the risk of nailing my political coffin shut, let me be specific.
College graduates who incurred a huge debt should be allowed to discharge the debt in bankruptcy if they cannot find suitable employment to repay the loans.
Employers should stop requiring college degrees that have nothing to do with requirements of the particular job positions. (This will happen naturally if the oversupply of job applicants shrinks to a normal level.)
Our expensive court system should be replaced by a system of judges, magistrates and clerks hired by the court who decide cases on the basis of fact after meeting informally with the disputing parties. The hourly fees of private attorneys having special access to the public courts should be capped.
The federal or state government should operate a public-health service that would provide basic medicine free of charge or at a low fee. Extraordinary health needs might be met by a system of private health providers. In any event, take the employee health-care burden off employers.
The U.S. government should turn over its international peace-keeping or regime-changing operations to the United Nations.
Prison inmates incarcerated on drug charges and other nonviolent crimes should be released. Marijuana should be legalized both as a medical and recreational drug.
Review the entire banking system, financial-services industry, and related taxation policies.
Have I attacked enough sacred cows yet?
Admittedly, some of these proposals are half-baked ideas that will require much more thought if they can be taken seriously. What I mean to say is that some other adjustments may need to be made to reduce costs if shorter work hours can put the economy back on a productive basis without loss. At least, if shorter hours do create new jobs in the productive economy, workers discharged from the bureaucratic sector will have a place to go.
The point is that the Obama administration’s proposal to adjust the income threshold for overtime gives us a starting point. This is a more important step forward than people realize. We know, in theory, what the problems are with respect to employment, natural resources, trade, and other areas of policy. What has been lacking is concrete solutions. And now we have something.
Initially, somewhere in the neighborhood of 5 million people will be affected by the policy change. These will not be low-income or blue-collar workers who traditionally have led the struggle for working people’s advancement rights. They will be people from the educated managerial and professional class. Many of these allegedly privileged workers are enslaved to an occupational system that requires inhumanely long hours to advance themselves in a career or even survive. They are, in fact, personally more oppressed than most other working people. Once the class blinders come off, these younger and more educated managerial and professional workers could be a powerful political force.
Traditional labor unions, once in the vanguard of progress for working people, have given up on the issue of shorter work time which was their original reason for being. They brought us the eight-hour day and perhaps even the five-day week, but they show no signs of leadership in creating a four- or three-day week. Now concentrated among public-sector employees, traditional labor is focused upon government programs and supporting the Democratic Party, not knowing or caring that the Democrats, too, have sold their souls to Wall Street. Social and economic progress will have to come from another source. And that source, I think, may be the younger and more educated managerial and professional workers, a growing segment of the work force.
An article by Claire Cain Miller in the business section of the Sunday New York Times on May 31, 2015, titled “The Problem with Work is Overwork” reported that an unnamed global consulting firm asked professors at the Harvard business school to do a study to find out why so many of its female employees quit the firm or failed to be promoted. Were its employment policies friendly enough to women?
The report concluded that “the problem was not women’s competing demands but that ‘two orthodoxies remain unchallenged: the necessity of long work hours and the inescapability of women’s stalled advancement.’” Employees at this particular firm averaged 60 to 65 hours per week. Stereotypically women were supposed to attend to family matters more than men. However, while females were more apt to take advantage of the firm’s flexible work policies, they suffered with respect to promotion if they did.
Another story in the business section of the New York Times on June 2, 2015, titled “Reflections on Stress and Hours on Wall St.” told of a young analyst at the Goldman Sachs office in San Francisco named Sarvshreshth Gupta who was found dead in the parking lot next to his apartment after working a string of long hours. Evidently he had jumped or fallen from an upper story.
Mr. Gupta had called his father in India the day before his death saying: “It is too much. I have not slept for two days, have a client meeting tomorrow morning, have to complete a presentation, my V.P. is annoyed, and I am working alone in my office.” When his father advised him to take 15 days off and come home, Gupta replied “They will not allow (it).”
The article said that “Mr. Gupta’s death (was) one of numerous unexpected deaths or suicides of young bankers over the last year ... Just last week, Thomas J. Hughes, a 29-year-old banker at Moeis & Company, was found dead with drugs in his system after falling from a building in Manhattan. ‘The only explanation is that I know he’s been working very hard and has been under a lot of pressure,’ Mr. Hughes’ father told the Daily Mail ..
“According to the National Occupational Mortality Surveillance, individuals who work in financial services are 1.5 times more likely to commit suicide than the national average. The highest suicide rates in the United States are among doctors, dentists, and veterinarians ... (In financial services) young analysts are expected to work 80 to 100 hours a week.”
Young professional employees do not get a lot of sympathy in today’s political culture. Class warfare remains the paradigm of struggle for better working conditions. But it is also obvious that the older professional workers who manage these firms are taking advantage of the younger workers and something needs to be done to help these people, if only to reduce their suicide risk.
Even those who do not sympathize with the highly paid young professionals should recognize these facts: First, if working hours are reduced in professional and managerial ranks, it will open up the opportunity for more people to fill those highly paid positions. Second, the “hazing” process involved with long-hours work creates a class of future managers who lack sympathy for newcomers to the firm because they themselves had to go through the same process. The better alternative is to stop such practices in their track so that future generations will not be victimized.
Since Goldman Sachs and similar firms control Congress and the White House, it is unlikely that the human needs of young, highly paid managers and professionals will be taken seriously by policy makers within the federal government. Still, it may be useful to make an appeal on their behalf.
I think traditional leftists should take up the cause because the model of class warfare is changing, from blue-collar vs. white-collar workers to something more along generational lines. (And I am an older guy who thinks that today’s young generation of Americans is being short-changed.) Social conservatives should also support shorter hours since it would increase personal freedom. Except for the upper-echelon exploiters, we are all in the same boat.
Therefore, the policy recommendation that I would make would be to eliminate or sharply curtain the exemption from overtime pay for managerial and professional employees in the Fair Labor Standards Act and raise the income threshold even higher. If it were up to me, I would double this threshold again to $100,000 and then index for inflation.
But progress does not need to stop here. Since robots will soon be doing more and more of the real work required in the economy, we need to think of the people working 40-hour weeks or doing part-time work to ensure that they can remain employed. Even if the economy will not require human labor for 40 hours a week, it may require people to work a lesser amount of time to meet production needs. Technology itself will be setting the standard of hours needing to be worked.
Prospectively, however, I think a 4-day, 32-hour week would be a reasonable initial goal. Even a 3-day week may not be unreasonable in the near future. It was John Maynard Keynes, after all, who thought we would have a 15-hour week by 2030. He considered shorter hours of work (not Keynesian economics) to be “the ultimate solution” to unemployment.
So here is how we might get started: (1) Put the President’s proposal to raise the income threshold into effect. (2) Amend the Fair Labor Standards Act with respect to the standard workweek. Lower it to 32 hours, either immediately or within four years. (3) Raise the income threshold to $100,000 and remove all occupational exemptions, excepting only CEOs and the self-employed who can effectively set the own salaries. (4) Amend the Fair Labor Standards Act so that the extra half-time premium paid for overtime work is taxed away rather than paid to the employee who works overtime.
This is admittedly a radical agenda but it should not be impossible if political forces are effectively mobilized in its support. I suspect that the chief stumbling blocks will be the idea of taxing away the half-time premium and the uncertainty with respect to incomes. Should working people support a proposal to take away part of their income - the extra overtime pay? Perhaps so if this is needed to deter overtime work and the income will be restored in other ways. (Keep in mind that moonlighting remains an option for financially stressed workers and shorter work hours will make it easier to hold another job. But the free market will also raise wages for those with a single job.) With respect to income, we can only go on past experience that economies which have substantially reduced hours as a long-term proposition have also maintained real wages. Apart from Professor Douglas’ study, we have the example of China cutting its workweek in 1995 and soon afterwards becoming an economic powerhouse.
Even so, I would make this proposal which ties the two concerns together. When the federal government lowers the standard workweek to 32 hours, it should also guarantee that weekly wages would remain at a certain level - perhaps 90 percent of the previous level - by providing a wage supplement for employees who experience a pay cut. That supplement can be at least partially covered by the money taxed away by the government in the half-time premium for overtime work no longer paid to the employee. Some of the uncertainty relating to free-market income determinations would be thereby relieved. But as we first-hand gain experience with shortened hours, this should not remain a major concern.
In short, the scheme presented here depends on free-market economics rather than government control. While the outcome cannot be predicted precisely, we have had two centuries of experience with free markets and ought, therefore, take a risk that the system will continue to regulate prices fairly. Specifically, it is worth risking elimination of the long-hours neo-slavery to gain what should be an economy affording greater leisure without loss of real income or living standards. On balance, we gain personal freedom. Isn’t that what red-blooded Americans should want?
There is one problem that could upset this plan: the porous economy. The shorter-workweek proposal would have beneficial effects in a closed economic system where the law of supply and demand controls prices and costs. However, our economy is not closed. We are instead living in a global economy where the U.S. government cannot set standards for wages and hours. Businesses compete worldwide and so do production workers. As it is, our government’s free-trade policies have put U.S. workers in direct competition with poorly paid workers in Latin and Asia, causing manufacturing jobs to go overseas. Automated production has started to reverse that trend but there is still a threat from low-paid foreign labor.
Trade deals have always contemplated reductions in tariffs and elimination of non-tariff trade barriers. But it does not have to be this way. A tariff is merely a tax, and taxes may be used to influence behavior as well as raise revenue for the government. In this case, we should consider using tariffs to punish businesses that pay workers poorly and work them long hours in their foreign operations. The tariff should be calculated to eliminate the cost advantage that outsourcing gains from poor labor and environmental conditions in other countries. In short, the lower the wages and longer the hours, the higher the tariff should be on goods produced under those conditions. Through computer technology, government has the means to calculate different tariff rates for different business firms or even for individual factories.
The solution to the porous economy is to scrap free trade and replace it with a system of tariffs that rewards individual producers for meeting higher labor and environmental standards. Yes, multinational businesses could still produce goods under substandard conditions but they would have to pay the piper through tariffs when they bring products into the United States to tap our consumer market. Such a system would, of course, require international cooperation to prevent trade wars but I think it might be forthcoming. We Americans are fast becoming the laggards with respect to labor standards.
All industrialized nations face a similar set of problems. They all have a surplus of educated workers. They all suffer from environmental pollution and growing resource scarcity. They all need to move toward a more sustainable economic model which an economy of leisure would be. Instead of making enemies of the Chinese, the Russians, or whomever, we Americans should see them as potential allies in a common struggle for a better economic future for the people of the world. We should be thinking of international cooperation to present a common set of policies to address worldwide problems in a concerted way. Technology is making it necessary to reduce working hours in all countries (though to different degrees based on their differing degrees of industrialization) and an agreed-upon set of tariffs could help accomplish this goal. That is the answer to the porous economy: Give the labor exploiters no place to operate in the entire world because the world’s governments have closed ranks to help working people.
Would those authoritarian communists in Beijing want to cooperate? It depends. To the extent that the Chinese government is influenced by the ideas of Karl Marx, they would know that capitalist economies have an inherent weakness in businesses having to lay off workers to increase profits but at the same time undermining their consumer markets. The shorter workweek could therefore legitimately be advanced as a Marxist proposal. However it is presented, this would be a good thing for Americans because we need shorter work hours to maintain full employment. The significance here is not that the Marxist angle would be a good selling point for a political program in America but that we need the cooperation of other governments, including China’s, to build a global economy that will benefit all nations and peoples.
To create a new society of leisure
The four-day, thirty-two hour workweek, instituted by simple amendment of the Fair Labor Standards Act, would be the first step toward creating a society of leisure. Either it works or it does not. Assuming that the change is successful, the process can proceed further. After another five or ten years, it may then be time to cut another day from the workweek. We could have a three-day, twenty-four hour week. Alternatively, it may be time to cut an hour or two from the work day. A four-day week of working six hours in the day would also be a twenty-four hour workweek.
Or, perhaps, the additional leisure should be taken in the form of legal vacations. The International Labor Organization’s Holidays with Pay convention adopted in 1970 provides for a minimum vacation of three weeks in a year for employees who have worked at a firm for at least a year. The U.S. government might consider joining the rest of the world in requiring adequate vacations.
The point is that technology-driven increases in labor productivity have made it possible to afford nearly any kind of hours reduction, assuming that the “sacred cows” can be kept in check. What a world this would be!
Keep in mind that the world of increased leisure is a world that people themselves will decide to make, either individually or in families and other groups. It might be good for them to be less competitive and contentious and more sociable; but again these are choices that leisurely people will have to make. They can spend the extra time watching television or they can spend the time in more active and creative pursuits. It is not up to anyone to say what people should do in their leisure. People have the right to waste their lives if they want. But at least it will be they making that decision rather than a business or government official who makes it for them.
Even so, I will speculate what might be in this kind of world. To start out, it may not be so important to succeed in the educational and career competition that we have now. If people spend less time at work, the workplace hierarchy will probably be less important. There may be greater turnover among the corporate and professional leaders because in a world of leisure such people may develop other interests. All would be seeking self-fulfillment of some sort. There would be more entry points to positions of leadership.
I would imagine that the world of careers might become more like military service. One has an obligation to serve one’s community in the sometimes unpleasant work of providing material sustenance and support for other people just as one has an obligation to serve one’s country in the armed forces. Maybe the tour of duty would last a year in certain positions, or maybe five, ten, or twenty years. To reach a certain career position would not define one’s personal identity as much as it does now. That is because more people are passing through those positions and also because one has a life outside of work.
I also believe that education needs to be scaled back to a more reasonable size. No longer can it be the funnel leading competitively to lucrative careers. There can be other, less expensive methods of preparing for careers. Some may involve the use of technology to convey instruction. The prerequisite for careers should be mainly the knowledge needed to perform particular functions competently, if they cannot be learned on the job. It is also unfair for tuition-paying students to finance the research of college professors. Society as a whole should do that since society is the beneficiary.
HIgher education can reposition itself to be an incubator of knowledge instead of being a preparer for desirable careers. The liberal arts can also play a role in its mission. I imagine college campuses as a place where likeminded intellectuals and other creative souls can gather in formal or informal communities to pursue common interests. I can imagine great debates and discussions taking place. There can be contests with prizes for certain things; and from such activities can come hierarchies of respected persons. People can be recognized for their self-chosen and sometimes unusual achievements.
The Renaissance is supposed to have begun in a contest to design and create the bronze doors of the front entrance to the Baptistry in Florence. The contest was held in 1401 A.D. Lorenzo Ghiberti won the contest and Filippo Brunelleschi was runner up. This event attracted broad interest, leading to a flowering of the creative arts and to an expanded culture generally.
Such things are still possible. The human desire to be recognized for achievement is virtually unlimited; and there can be institutions, including educational ones, catering to that desire. Not everything creative needs to be an achievement in the fine arts. What is new and exciting will allow such events unexpectedly to take place from which the human spirit blossoms.
The new society of leisure can combine communication with distant places through the Internet with revitalized local communities. With more free time, people could interact more often and more vigorously with other people instead of receiving packaged communication from the media as a form of relaxation. Life could again become real.
In a new society of leisure, I can imagine people laboring in backyard gardens to produce their own food or to produce better varieties of vegetables. People will have time to repair torn clothing or find new uses for electronic devices. We can cut down on the throw-away culture of discarded commercial products. We can bicycle to work or places of entertainment. In such ways, we would be leaving a lighter footprint upon the earth while widening the scope of personal freedom.
I believe that the struggle for personal rank and position will always be with us. People have selfish as well as idealistic motives. The trick is to recognize people for activities other going to war or force-feeding commercial products to consumers. We can also work upon ourselves as individual persons, developing new models of attractive personality. But to do this we need adequate leisure; and that is what Americans presently do not have.
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