Spread the Work Scheme   1 comment

The art of economics consists in looking not merely at the immediate, but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group, but for all groups.

This is an ongoing series of posts on Henry Hazlitt’s Economics in One Lesson. You can access the Table of Contents here. Although written in 1946, it still touches on many of the issues we face in 2017, particularly the fallacies government economic programs are built upon.

 

Hazlitt referred to various union make-work and “featherbed” practices tolerated by the public, explaining that they sprang from the same fundamental fallacy as the fear of machines — the belief that a more efficient way of doing things destroys jobs. This relates to a belief that there is a fixed amount of work to be done in the world and so we need to spread the work around to as many people as possible.

Image result for image of make-work employment

Therefore, in the building trades in large cities, bricklayers aren’t allowed to use stones for chimneys — stonemasons must be employed for that. An electrician cannot rip out a board to fix a connection and put it back in the wall – he needs to wait for a carpenter to do that. A plumber will not remove or reinstall a tile while fixing a leak in the shower — he demurs to the tile-setter for this. My husband has a similar story of when he was a burner repairman with crossing training in electrical and plumbing. By license, he wasn’t allowed to hook up the electrical for the boiler or to repair the well pump that had drawn a vacuum. He knew how to do these things, but legally he couldn’t. Now, he has the electrical license, but in point of fact, his skills in electrical are no better than before.

What we don’t see with all these silos of labor is that this division raised production costs, resulting in a net balance of less work done and fewer goods produced. Homeowners are forced to employ two men to do the work of one, which gives employment to one extra man, but means the homeowner has less money to spend elsewhere. Although one tilesetter may have made a day’s employment, perhaps a new computer wasn’t purchased to offset his wages. The homeowner is worse off financially. Instead of having a repaired shower and a computer, he has only the shower. Ultimately, the country is short one computer as a result of arbitrary subdivisions of labor.

Decades ago, such fallacy was used as an excuse to forbid employment to woman or minorities. Today, it’s used as an argument for overtime pay for employment greater than 40 hours a week. Although the proponents of this will say it is for health and safety reason, the origin of the discussion was that by charging an employer a 50% penalty for working an employee overtime, it would force the employer to employ additional workers instead.

There are those who advocate for shorter work weeks based on the same fallacy. Hazlitt looked at two cases to show how this fallacy operates.

The first is a reduction in the standard working week from 40 hours to 30 without any change in the hourly rate of pay. The second is a reduction in the working week from forty hours to thirty, but with a sufficient increase in hourly wage rates to maintain
the same weekly pay for the individual workers already employed.

If there is substantial unemployment when this plan is put into effect, the plan will no doubt provide additional jobs, but will it provide sufficient additional jobs to maintain the same payrolls and and the same number of man-hours as before? That’s doubtful because not every industry will have exactly the same percentage of unemployment and the new workers will, at least initially, be less efficient at their special tasks on the average than those who had already been employed, thus raising production costs. Hazlitt said to set those concerns aside and assume this is a perfect world.

Though more workers will be employed, each will be working fewer hours, and there will … be no net increase in man-hours. It is unlikely that there will be any significant increase in production. Total payrolls and “purchasing power” will be no larger. All that will have happened, even under the most favorable assumptions … is that the workers previously employed will subsidize … the workers previously unemployed.

The previously employed workers will be purchasing more leisure time at a high price. This is why labor union leaders usually put this proposal forth as a hours cut with pay remaining the same. This raises production costs and, in the long run, increases unemployment. The least efficient firms can’t compete and the least efficient workers will be thrown out of jobs. Higher production costs and scarcer supplies tend to raise prices,s o workers can buy less with the same wages, while increased unemployment will shrink demand and lower prices.

The people who support such schemes think only of the employment they would provide for particular persons or groups; they do not stop to consider what their whole effect would be on everybody.

This is because there is a false assumption that there is just a fixed amount of work to be done. As we discovered with the Industrial Revolution, that is simply not the case.

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Posted January 20, 2017 by aurorawatcherak in economics

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One response to “Spread the Work Scheme

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  1. Pingback: Introduction to “Economics in One Lesson” | aurorawatcherak

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