Thursday, August 6, 2009

The Fundamental Truth of Basic Facts

The April 1935 issue of Congressional Digest featured a debate between American Federation of Labor President, William Green and Neil Carothers, Professor of Economics at Lehigh University, on the topic "Would a Thirty-Hour Week Increase Employment."

Carothers presented the "con" position that the adoption of a 30-hour week would defeat its purpose and lower the standard of living by reducing industrial production. A supporter of FDR during the 1932 election, Carothers became an outspoken opponent of the New Deal and was a member of the National Advisory Council of the American Liberty League.
"The fundamental truth that you cannot help labor by reducing production is the basic fact in this 30-hour week matter."
Those who want to reduce the workweek are like a man who just jumped through a plate glass window. He can't remember why he did it but it seemed like a good idea at the time.

There is no economic issue more complex and obscure than the hours of work. The trained economist hesitates to speak on it. Nevertheless, there are some very elementary economics involved.

There are three factors of production: land, labor and capital. All three are paid out of the product of industry. Automatic forces of nature set the share of each. Whatever reduces the productivity of any one of them reduces the product and reduces wages.

If the average work week is 44 hours, then the national dividend is simply the product of 44 hours of labor applied to our land and capital. Cut this work to 22 hours and you destroy the American standard of living. Cut it again to 11 hours and our civilization disappears. Cut it once more to 5 and 1/2 hours, and death sweeps away the population.

But you say, this is a proposal to cut to 30 hours. Exactly. It will have the same starvation tendency, but it will not go quite so far.

You can solemnly propound fool theories, you can talk glibly about "sharing the work," you can believe in impractical schemes for "absorbing the unemployed"; but this cold fact still stares you in the face. It has been a fact for a long time. That's all there is to it.

Well… almost all, except for some refined analysis. One of the glorious facts of American history is the slow but relentless reduction in the hours of labor. What has caused this blessed improvement? It was the operation of economic forces!

Labor's argument that reducing hours increases total output is, in general, not true. What is true is that when hours are uneconomically long they result in a loss to the employer and thus he can afford to reduce them.

Unfortunately, this only works for highly skilled workers with modern machinery. It's not for ditch diggers, dishwashers or retail sales clerks, though, poor devils! But economic history shows that it is wiser to restrict hours in these fields at least to the point where workers are not victims of exhaustion or deprived of home life and recreation. Arbitrary restrictions of their hours throws these workers on relief.

The increasing expense of capital equipment makes radical reduction of hours most dangerous. Shortening the hours of work increases the overhead cost and will wipe out returns from sales. All this tedious economics is essential for an understanding of the 30-hour week proposal.

In practice, the law would affect only a small proportion of the workforce and thus lead to a trivial amount of job creation. So, what is the real objective of the 30-hour workweek scheme, then? The real objective is to force a wage increase by law. The six-hour day will become an eight-hour day for a few privileged workers with the last two hours being worked at the overtime premium. In the long run, though, even these workers will not gain because their excessive wages will cause employers to replace them with machines and they will end up out of work, too.

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