In the UK, political parties are starting to argue about the merits and economics of the 4-day workweek as they head into a general election. The Labour Party, building on advocacy by UK trade unions, has announced that they want to move to a 4-day week in the next decade. Leading the charge on the conservative side is the Times: on Tuesday, their editorial page wrote,
Jeremy Corbyn’s aim to introduce a four-day working week would cost the taxpayer at least £17 billion a year because of the impact on the public sector wage bill, a new analysis has shown….
Research by the Centre for Policy Studies, a centre-right think tank, has found that reducing the hours of public sector employees, including doctors, nurses, teachers, firefighters and police officers, would impose a significant extra burden on the Treasury because the workforce would have to expand.
In an editorial titled “The Road to Serfdom” (we just can’t quit Hayek is seems), the Times said that “Labour’s unreality is exemplified too in its plan to introduce a four-day working week over ten years with no loss of pay.” So they’re keen to knock down the idea that the 4-day week is viable.
[I]f we simply reduce the hours worked by each public sector worker, this will impose a cost as you have to expand the workforce to obtain the same results. The total compensation paid to public sector workers was £183.8 billion in 2017 (the latest year available).4 If you assume a simple increase in costs due to lower hours and no increase in productivity, meaning more staff must be hired, the costs of bringing in a four-day work would at present be either £45 billion (assuming we go from 42.5 to 32 hours a week on average) or £26 billion (assuming we go from 37.3 hours to 32 hours a week on average).
However, let us assume that through a version of compressed hours, smarter working, and higher motivation, you might make significant productivity gains. This is incredibly optimistic, given the lack of formal evidence for such a sharp rise in productivity due to simply having lower hours. But if we adopt as our central estimate a 6% gain in productivity, worth half the hours lost, this could (on such heroic assumptions), be worth around a £9 billion increase in productivity, which could partly cancel out the cost of lower hours.
Even under this scenario, however, the shift to a 32-hour working week would mean a £17 billion hit to the public sector on today’s numbers.
Of course, I think any responsible analyst will say that trying to forecast about productivity and labor costs ten years out is basically an exercise in guesswork. However, there are a couple things that seem worth pointing out.
First, this assumes a lower productivity gain than I’ve seen in companies that have moved to 4-day weeks. Only one says that they’ve taken a hit on productivity; the rest talk about being as productive as they were when working 5 days (i.e., being 20% more productive), or being more productive (i.e., getting over 20%). Microsoft Japan reported an increase of almost 40% during their recent trial.
Second, it doesn’t try to figure in the indirect gains and savings that come from shortening the workweek, even at publicly-funded organizations. For example, when a Swedish nursing home moved its nursing staff to a 6-hour day, the program cost about 700k euro per year, but because they hired a bunch of people who hadn’t been working, they saved the government half that in unemployment insurance. At the Glebe, a retirement home in Virginia, a 6-hour workday for nursing staff cost about $145,000 a year, but saved more than $120,000 in overtime, fees to recruiting agencies, and fees to temp agencies– plus there were additional savings because care was better, so residents had fewer injuries, and needed fewer drugs and attention from doctors.
There are also indirect gains that come in the form of better worker health, fewer sick days, less burnout, and lower turnover / higher retention rates– all of which can be expensive for companies, and a burden on societies and economies. (Burnout alone costs the global economy $300 billion a year.) In the UK, KPMG estimates that the inability of professional or skilled women to reenter the job market after having children costs the economy more than £1 billion annually. You could also include lower spending by workers on things like gas and child care; and from reduced spending by the organization on health insurance, and utilities if offices are closed an extra day.
Third, there are plenty of governments that have implemented 4-day weeks, and shown that it’s possible to do this without cutting services. I was recently in Maine, and found a number of towns that have moved most of their government services to 4 days a week. Granted, these are pretty small towns, but they report that thanks to being about to put some government services– paying taxes, getting licenses and registrations, applying for things– online, and having elected officials be available via email or Skype (or just at the corner diner– I said these are small towns), they reduce the amount of time they need to spend in an office, without being less accessible. (As I recently noted, a Danish municipality is experimenting with 4-day weeks now.) The state government of Utah did this for a years under Jon Huntsman.
There’s another point work making. The CPS study says,
In general, most economists assume that as productivity rises, hours worked decline. This appeared to hold true throughout the 20th century. But there is much less evidence for the opposite argument – that if you reduce hours, productivity automatically increases.
Which is correct, but is not the actual experience of any company or organization that’s shortened its working hours. It’s not a merely automatic effect: productivity goes up because people use shorter hours as a chance to implement managerial reforms, process improvements, and changes in how people use technology– often while spending little or nothing– in order to improve productivity.
Now having said this, it’s definitely the case that you can mandate lower working hours in ways that are problematic; the Korean government’s experience is one cautionary tale, and the French experience has been kinda mixed, too.
But 4-day weeks should be treated as an investment, not an expense, and serious policymakers should try to forecast more comprehensively how they can impact an economy.