Reducing working hours per week

Reducing working hours per week

Three proposals were examined, co-entrepreneurship, remote work nets, co-franchising. These could have a considerable impact on decreasing income differences and unemployment. They constitute level one. State’s role could be minimal, simple and inexpensive. Having an agency that would bring together potential participants or paying consultants to write some useful information and directions that will be available as web-book or e-book are two possibilities. There may even be a small charge for the book. Another way to assist is to create the right legal and tax environment for the three alternatives and also promote them.

Citizens' response is more important. All require an entrepreneurial spirit. There are many countries in the world that do not have it. If you want to really help someone, show him how to help himself. If you give a man a fish, you will feed him for a day. If you teach a man how to fish, you will feed him for a life time. Level one could be sufficient. If it is not, we move to level two, three and four.

An interesting opinion is that instead of calculating GDP (Gross Domestic Product) we should be calculating Economic Welfare. Factors that are usually suggested for Economic Welfare are relative income equality, good health services, educational level etc. Reducing working hours per week will reduce GDP but will have a positive impact on welfare. In the long run, the missing labor hours may be substituted by machines and computers.

The matter is more philosophical than economical. What will happen if GDP is reduced? We will consume less! Do we really need everything that we consume? We will still have all those things that are important to us but we will have to “trim the fat”, get rid of all these that are not important. A 20% reduction in a working week, will have approximately 20% decrease in GDP, if there is almost full employment. What if there is high unemployment?

One reason for income inequality is unemployment. People with low incomes, still have incomes. Unemployed have zero income. Most countries have unemployment benefits that do not last for long and are small amounts. Only a few countries have satisfactory levels that last for a long time. Unemployment is not only a problem of less advanced countries. There are relatively advanced countries, like Spain and Greece, with high unemployment rates.

One simple solution to the unemployment problem is reducing working hours per week and accordingly adjusting salaries. In this case there won’t be a decrease in GDP because unemployed will start working. There will be a decrease though in the incomes of those who are working. If unemployment is 20% the working hours per week that will make unemployment 0 are 32 hours which is derived by multiplying 40 hours per week by (1-unemployment rate). In other words, working hours are reduced by unemployment rate. There is a simple mathematical formula that calculates that.

W number of those working - U number of those unemployed - T working plus unemployed - H new hours per week

T = W + U --> W = T - U --> W = T - (T x 0,2) --> W = T x (1 - 0,2)

T x H = W x 40   --> T x H = T x (1 - 0,2) x 40 -->  H = (1 - 0,2) x 40 --> H = 32

This is an oversimplification because not everybody works 40 hours per week. A formula that is a little more complex should be used which is based on the same notion. The reduction in working hours can be either by reducing the working days or the working hours per day. A 4 days working week will require 32/4 = 8 hours daily while a 5 days working week will require 32/5 = 6.4 hours daily (6 hours and 24 minutes).

There are different types of unemployment, cyclical, frictional, seasonal, structural, natural. Some structural unemployment may remain. This is the type of unemployment that is created because unemployed do not have the required skills to match the vacant positions. Unemployment doesn’t have to drop from 20% to 0%. In order to drop 10 points, weekly working hours will have to drop 10% to 36. A 4 days working week will have 9 hours per day and a 5 days working week will have 7,2 hours (7 hours and 12 minutes) daily. If unemployment rate is 20%, it will drop to 10% and if it is 15%, it will drop to 5% which is generally acceptable.

Some people argue that salaries should not change. If salaries change, employees bear the cost but at the same time they gain more hours per week. If salaries do not change, employers bear the cost without gaining anything. This will increase their total cost and as a result some companies that are around break even point will close and their workers will become unemployed. So, by doing this some unemployment will be created.

The general belief in most advanced countries is that we should help those in need. The taxpayer pays unemployment benefits. When we pay unemployment benefits as taxpayers, we only gain because we are doing a good deed. By reducing the working week, we help others but at the same time we gain free time and overall welfare.

Taking advantage of the unemployment and welfare benefits system is definitely something that is happening. When working week is reduced, no one will do it  because pretty much everyone will be working. So, employed see a decrease in their incomes but not only gain free hours and overall welfare but also avoid paying for unemployment and welfare benefits. If companies take a small part of the cost (for reducing work week), it seems like a pretty good deal for employed people.

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