Thursday, December 24, 2015

"Did the Great Recession Lead to the Great Vacation?" -- Yes.

Hey, don't laugh.

George Zipf (1941) "National Unity and Disunity; the nation as a bio-social organism":
Let us view the American depression of 1929 with the concept of leisure time in mind. 
b) October, 1929; the discovery of the 'raw material' of leisure time. 
With the end of 1929, the American total economy reached a point of great achievement, namely, a point when the national economy could produce its accustomed needs without using anywhere near all its available energies. Expressed differently, in 1929 the United States discovered a new 'raw material': leisure time, which in a way is just as much a 'raw material' as coal, oil, steel or anything else, because for many types of human activity, leisure time is an essential prerequisite. Of course one may be inclined to say that 1929 introduced a period of surplus production; that is true. Nevertheless in the solution of any problem much depends upon the angle of approach, and in this study we prefer to speak of the introduction of a surplus of leisure time. 
However, as we have remarked in the course of our study, any change in kind or amount of goods or of processes within a social-economy will necessitate a restriation within that social-economy itself. This was true of the discovery of steam, oil, and the like, and it will also be true of the 'discovery' of leisure time. 
Yet what are some of the implications of an increase of leisure time as far as production is concerned? Obviously, as long as a social-economy produces goods in sufficient amount to meet the minimal needs necessary for the survival of its members, then a social-economy could conceivably continue indefinitely. The only draw-back to this happy state of affairs is the phrase 'the minimal needs necessary for the survival of its members.' We do not know what those hypothetical minimal needs are, nor do we know a happy way of indefinitely forcing great masses of the population to be contented with a supply equal merely to the barest needs of survival, as long as more goods are possible. However, let us return to the consideration of leisure time as a raw material, or if one prefers, as a consumable good. 
As soon as we turn to the implications of an increase of leisure time from the viewpoint of distribution, then matters become clearer. Leisure time, like any other consumable good, is something worth organizing for; and the distribution of amounts of leisure time to the members of a population is as much subject to the laws of income-distribution as anything else. People like to eat, to sleep, to play,—and people like to 'loaf.' In short, everyone wants leisure time. To live by doing nothing is the height of economy. But how about the distribution of leisure time? Naturally, a large-scale unemployment is in and for itself a certain distribution of leisure time. But is it the most economical distribution of the nation's entire stock of leisure time within the total reservoir of a nation's complete production of consumable goods?"
Say what? Leisure time as raw material?

(Can't Stop) Endlessly Spouting Chapman

Here's a shorter summary of the Chapman model, originally published in "The 'lump-of-labor' case against work-sharing: populist fallacy or marginalist throwback." from Working Time: International trends, theory and policy perspectives and reposted on MaxSpeak in 2006.

Chapman revisited the issue of the hours of labor in his presidential address -- delivered in Winnipeg, Manitoba -- to the British Association for the Advancement of Science, Section on Economic Science and Statistics (1909). That analysis came to be considered the "classical statement of the theory of 'hours' in a free market" (Hicks 1932: 102n.; Nyland 1989). Arthur Pigou restated Chapman's argument in Economics of Welfare (Pigou 1952; 462-469). Alfred Marshall referred to Chapman's analysis as authoritative, as did Lionel Robbins (Marshall 1961: 695; Robbins 1929: 25). Concluding his footnote reference to Chapman and Pigou, Hicks declared, "There is very little that needs to be added to the conclusions of these authorities." Very little, perhaps, other than the strange occurrence that although Chapman's argument has never been challenged, economists today are oblivious to its major conclusions. Most are unaware not only of the theory's authoritative status but even of its existence.

Unlike [John] Rae, Chapman saw no particular danger in workers' views -- "fallacious or otherwise" -- about the mechanics of distribution (Chapman: 365). On the contrary, Chapman suggested that such attitudes probably had protected workers "against the injurious consequences of short-sightedness."

Chapman began his discussion of the hours of labor by reviewing the mass of evidence that reductions in the hours of work had not led to proportionate declines in output. Chapman attributed the phenomenon to the fact that as production methods become more intensive, workers require more leisure time to fully recover from the fatigue of work. He emphasized that in modern industry fatigue was increasingly psychological, resulting from the demands of modern industry for specialization and mental concentration as well as from the workers' attitude toward leisure rather than from the strictly physiological demands of the work. When the hours of labour were reduced, the better-rested workers were often able to produce as much or more in the shorter hours than they had previously in longer hours.

The total value of the output from standard working days of different lengths would thus initially increase as the day became longer but eventually the total output -- not only the output per hour -- would decline as the standard day became too long to allow the worker to recover sufficiently from fatigue. Beyond a certain point, each additional hour of work would continue to add a quantum of output to the current day's total output but only at the expense of reducing the next day's hourly pace. What that point was, Chapman maintained, depended on the intensity of the specific production methods and thus would vary in response to changes in those methods.

Having established the idea of an optimal length of standard working day that would maximize output, Chapman next turned to the questions of whether such an optimal length would likely be established by the workings of a free market and whether the optimal length of day for output coincided with the optimal length from the perspective of the workers' welfare. His conclusions in both cases were negative.

From the perspective of the employer, Chapman argued, the optimal length of day for output could only be achieved if all employers acted in enlightened accord. This is because the maintenance of the long-term optimum would always require some short-term restraint. A single employer could never be entirely certain of reaping the benefit of that restraint. Another firm could always potentially offer a small wage premium and hire away the first firm's well-rested workers. For employers, the optimal output work-time would thus be a form of investment without equity:
The reforming employer would run the risk of paying the whole cost of the labour value created by shorter hours and getting little in return; other employers might secure and exhaust the new labour value and no permanent good would be effected (1909: 361).
From the perspective of the worker, the optimal length of day could, for all practical purposes, be considered to be shorter than the optimal length of the day for output. Chapman considered three elements in assessing the optimal day for the worker:
  1. the wage, which Chapman assumed for the purpose of analysis to exactly equal the worker's marginal productivity;
  2. the marginal value of leisure, which Chapman assumed to vary in response to changes in the level of wages; and
  3. the disutility of work, which Chapman assumed to also be a function of the length of the working day -- during some intermediate period of the working day, Chapman assumed that work could often be experienced as pleasurable.
Chapman maintained that in forming their ideal of a working day, workers' would disregard the effects of changes in work time on efficiency, and hence on wages. As a consequence they would tend to prefer a working day longer than would be prudent in the long run, even though it would not be as long as that preferred by employers acting competitively. Thus the exclusive concern of both employers and workers with immediate self-interest would bias the preferences of each toward longer than optimal hours (1909: 367).

In the two decades following Chapman's address, his demonstration of market failure in the determination of working time led to systematic empirical study of the relationship between fatigue and work intensity. According to Nyland (1989), however, attention to the question of work intensity faded during the 1930s and after, largely because "the fact that worktime had both a temporal and intensive character made it difficult to utilise marginal productivity theory to determine the return on various factors of production" (1989: 33). As a simplifying abstraction, economists assumed that the given working day was of optimal length. Eventually, the hypothetical -- and antithetical -- status of that assumption came to be overlooked. Economists negligently reverted to a pre-Chapman faith that unencumbered market forces would spontaneously lead to the establishment of an optimal length of work time.

and Can't Stop Endlessly Spouting Chapman II:

In 2001, the Government of Queensland further summarized Sandwichman's summary of Chapman's theory in its submission to the Australian Industrial Relations Commission's Reasonable Hours Test Case. At 400 words, it's the shortest comprehensive summary of Chapman's theory I know of.
5.2.1 Theoretical review
The study of the relationship between work intensity and fatigue owes much to S.J Chapman's theory of the hours of labour, where in 1909 Chapman demonstrated market failure in the determination of working time. This argument initially involves the establishment of a concept of 'optimal hours'. The main points of this argument can be summarised as follows:

  • a mass of evidence indicating that reductions in hours of work had not led to proportionate declines in output;
  • in modern industry fatigue was increasingly less physical in nature and more a combination of psychological and physiological as a result of specialization and increased need for mental concentration;
  • the reduction of hours allowed better-rested workers to produce as much or more in the shorter hours;
  • the total value of the output would initially rise as the working day increased but eventually the total output as well as the output per hour would decline as the working day became so long that it prevented adequate recovery from fatigue for workers;
  • this is the case because, beyond a certain point, each additional hour of work would be contributing to the output of the current day's total output but at the expense of the following day's output capacity; and
  • the intensity of the work involved would dictate the point at which total output begins to fall and thus the length of the 'optimal' working day.
The second half of this argument explores whether the free market can arrive at the 'optimal' length of day, and can be summarised as follows:
  • the maintenance of a long-term optimum by employers would require short-term restraint;
  • each individual employer could never be certain of reaping the benefit of their restraint as another firm could potentially entice the employer's well-rested workers away with a wage premium;
  • therefore the optimal output work time is a form of investment without equity;
  • simultaneously, Chapman assumed that workers would choose a longer working day than was prudent (although not as long as the working day preferred by employers), primarily because of a general short-sightedness that would mean workers would consider their immediate earning capacity more than their long term earning capacity; and
  • the outcome in a free market situation would therefore be one where employers and employees acting in self-interest would each tend to select a working day that was longer than the 'optimal' hours.

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