In his essay Economic Possibilities for our Grandchildren (1930), John Maynard Keynes predicted that economic and technological progress would enable a 15-hour work week by 2030. If he was wrong about the timing, he was right about the direction of travel. The Covid-19 pandemic has forced a re-evaluation of current practices in the world of work and has prompted many to begin exploring different strategies, one of which is the four-day week. Used as a damage-limitation device in Germany and the UK in times of economic crisis, a shorter working week has significant longer-term benefits to both employer and employee, and to the economy at large.
Once the true impact of Covid-19 on the global economy became apparent in March 2020, governments across the world scrambled to draw up job retention schemes. Germany introduced a tweaked form of its Kurzarbeit system, last used after the financial crash, whereby employees’ working hours are reduced and a large proportion (60-80%) of lost income is picked up by the state. Germany was the only G7 country to register a decrease in unemployment in 2009, and the programme has recently been called the ‘gold standard’ of such schemes by the IMF. Denmark, Sweden, Switzerland, Italy and Japan among others have recently adopted similar systems, but reduced working hours has benefits far beyond the Covid crisis.
The United Kingdom is beset with another crisis of sorts, and one that reduced working hours could also help to solve: that of productivity. Ever since the financial crisis of 2008-9, the UK has suffered an acute decrease in productivity growth. Britain ranked 31st out of the OECD’s then-35 member states in growth of output per hour between 2008 and 2017, and ONS data from 2016 explain that the average British worker produced 16% less than counterparts in G7 economies. Business capital investment is only three quarters that of France, Germany, and the US as a percent of GDP, self-employment has been rising, and technology improvement has slowed. These are just a few causes behind the productivity question that has plagued successive Chancellors.
It is no secret that shorter working hours boost productivity. At the outbreak of the Great War, munition factory labourers in the United Kingdom were frequently working 100-hour weeks to satiate demand. The British Health of Munition Workers Committee (HMWC) was established in September 1915 to advise on concerns of productivity and workers’ fatigue. Its findings, published in January 1916, recommended a cap on weekly hours at 65-67 for men, and 60 for women and youth. Remarkably, no change in output was expected, and extensive analysis has confirmed this would have been the case.
In the same spirit, in August 2019, Microsoft Japan’s 2,300 employees were given five consecutive Fridays off without a reduction in pay, and instead encouraged to volunteer. The results made headlines: productivity jumped by 40%, and 92% of employees thought positively of the change.
On a macroeconomic scale, the same trend persists. European countries with the highest average working hours tend to be the least productive – and, crucially, the reverse holds true.
But can reduced working hours do enough for productivity to guarantee no fall in aggregate output? An extensive investigation into the effects of the four-day week in two American garment factories in 1975 concluded there was no significant rise in workers’ productivity and as such, output fell. If a four-day week were to be introduced on a legal mandate, manufacturing and labour-intensive industries would be more likely to see a fall in output. This needn’t be of great concern: manufacturing accounted for just 8.6% of UK GDP in 2019, and technological advances have reduced the manufacturing workforce by 53% since 1981. Furthermore, a recent YouGov poll suggested that 74% of British workers believe they could complete their 5-day week’s work in 4 days, without a drop in standard. The study does, however, highlight the importance of sectoral consideration with changes to working hours. Indeed, as the French example of 2000 shows, the universal introduction of a shorter working week, without sensitivity to sector, could be costly.
There are gains to be made in other areas. In the UK, 55% of working days lost in 2019/2020 were attributed to work-related ill-health. For each worker who claims sick leave, there are many more whose under-performance from fatigue goes unreported. A four-day week, or a reduction in working hours, without loss of pay, could significantly lessen days lost to ill-health. Moreover, increasing evidence suggests a four-day week could drastically improve corporate sustainability. In Japan, Microsoft’s electricity consumption was (expectedly) down 23%, and paper consumption by 59%. Evidence presented by researchers at Political Economy Research Institute forecast that for every percentage point decrease in working hours, OECD countries would see a 1.5% reduction in their carbon footprint. A ‘green recovery’ from the pandemic is a popular policy, and a four-day week could form an integral part of it.
Important question marks remain; sceptics are quick to point out that a four-day week could have huge ramifications for the public finances. Analysis conducted by the Centre for Policy Studies concluded a 32-hour working week in the public sector could cost the taxpayer £17bn owing to the need to expand the workforce to compensate. More training costs, higher admin costs, and a reliance on less-skilled employees, are just some of the drawbacks of such a change. It is argued, however, that these losses would be partially offset by a reduction in benefit costs.
The great engine of working hours reduction, fuelled by productivity gains, has significantly slowed in developed countries since the 1980s, leaving in doubt whether Keynes’ prediction will ever be met. However, the shifts caused by Covid to online and hybrid working could yet stimulate the seismic change needed to adapt business practices, raise productivity, and lower working hours. Whilst trials of the four-day working week have thus far been largely confined to small-scale businesses, the concept has demonstrated exciting potential to be rolled out more widely or given regulatory and legal power. Though any new policy will require great sensitivity to sectoral differences if it is to be successful, this should not deter us from searching for a new norm.
etonomics.com 