The Hill: “Sen. Bernie Sanders (I-Vt.) on Wednesday introduced a bill to establish a standard four-day workweek in the United States without any reduction in pay.
“The bill, over a four-year period, would lower the threshold required for overtime pay, from 40 hours to 32 hours. It would require overtime pay at a rate of 1.5 times a worker’s regular salary for workdays longer than 8 hours, and it would require overtime pay at double a worker’s regular salary for workdays longer than 12 hours.”
I will show that other things being equal, the effect of enacting this bill will be to reduce real wages in proportion to the reduction in the work week. If, as this bill intends, the work week is cut by 20 percent, from 40 hours to 32 hours, weekly real wages will also be cut by 20 percent, and at the very time when other acts of government intervention, especially all of the anti-energy policies and inflation, are working to cut real wages by an additional substantial fraction. Thus, the bill is a major assault on the standard of living of the average wage earner, coupled with other such major assaults.
Sander’s bill will sharply reduce the standard of living of the average wage earner
To understand why and how the enactment of this bill will sharply reduce the standard of living of the average wage earner, the main things we need to hold equal in our minds, as we analyze its effects, are the total volume of spending in the economic system to buy consumers’ goods and the total volume of spending to pay wages, along with the output per worker per hour. Then we need to realize that the general consumer price level is the result of dividing the volume of consumer spending by the total quantity of consumers’ goods produced and sold per some definite period of time, such as a year, and that the average money wage in the economic system is the result of dividing total wage payments per year by the number of wage earners employed.
To be sure, there are problems in adding houses to cars to haircuts, etc., etc. when we compute the total of consumers’ goods produced, even when we calculate output on the basis of relative prices, such as counting one $500,000 house as the equivalent of ten $50,000 automobiles. But one way or another, we compare different output totals. We do it every time we say such things as “much more is produced in the United States today than was produced a hundred years ago or is currently produced in Canada.” We do it every time we judge a country’s output in a given year to be greater or smaller than in the year before.
The next thing we need to do is further simplify the quantities we deal with. Today, trillions of dollars are spent every year in buying consumers’ goods and in paying wages. We can radically simplify this by assuming that total annual spending in the economic system for consumers’ goods is some easily graspable fixed amount, such as 500 monetary units, and that total wage payments are a somewhat smaller fixed amount, such as 400 monetary units. (The difference, of course, implies an aggregate profit of 100 monetary units.) Our analysis is firmly tied to the real world by the fact that each monetary unit, that for consumers’ goods and that for labor, represents as many real-world dollars as is necessary to make our hypothetical aggregate expenditures for consumers’ goods and labor equal to their actual current totals.
Now we introduce a 20 percent reduction in the work week, from 40 hours to 32 hours. Thus, we have four-fifths the supply of labor employed. With a constant average productivity of labor, i.e., output per hour of labor, this implies not only four-fifths the supply of labor employed but also four-fifths the supply of consumers’ goods produced.
Four-fifths the hours of labor performed in exchange for the same total payment of wages implies a rise in hourly wage rates to five-fourths. Five-fourths the hourly wage rate times four-fifths the number of hours worked implies unchanged weekly wage rates. (Ironically, Sanders thinks it is necessary to achieve unchanged weekly wages by law. He is unaware of the effect of the decreased supply of hours worked on hourly wage rates.)
The fact that weekly wage rates remain the same in the face of a shortening of the work week, should not be taken as any kind of argument for a forced shortening of the work week. Because with an unchanged output per hour of work, any given reduction in the amount of labor performed ultimately implies an equivalent reduction in the supply of output produced and a corresponding inversely proportionate rise in prices. Thus, while weekly wages may remain the same, they do so in the face of a rise in prices that is inversely proportionate to the reduction in hours. The fall in real wages takes place not through any fall in money wage rates, but through a rise in prices.
The real world of the present day is characterized by an increasing quantity of money, indeed, by an acceleratingly rapid increase in the quantity of money, the result of which is that virtually all wages and prices tend to rise and to do so ever more rapidly. In these conditions, the result of the reduction in the quantity of labor performed is that the rise in prices is correspondingly greater relative to the rise in wages and that the standard of living of the average worker falls to that extent.
Given all of the government intervention in existence and likely to come into existence, Sanders’ proposal turns out to be the exact opposite of what is actually needed in the present circumstances. This, if anything, is a lengthening of the work week. By increasing production per worker, that would increase the supply of consumers’ goods relative to the number of workers employed, and thus reduce prices relative to wages, i.e., raise real wages. Workers would then be better able to withstand the government’s assaults on their standard of living. Of course, the government should never attempt to achieve such a result by law. Rather it should be working to reduce any need for such a result by repealing its laws and regulations that reduce the productivity of labor.
A shortening of the hours of work is a highly desirable goal. But it cannot be achieved along with growing prosperity except in a free market. Then a progressively rising output per unit of labor results in a progressive fall in prices relative to wages, which allows more and more workers to accept the lower wages of a shorter workweek. Indeed, with real wages high enough, workers can afford to accept weekly wages lower in greater proportion than the hours worked. For example, with real wages double those of today, workers might well prefer a 20 percent shorter workweek to a 30 percent reduction in the goods they could have. For 70 percent of a doubled standard of living is still a 40% higher standard of living than before.
Indeed, the reduction in the hours of work that has taken place under capitalism has been achieved in just this way. The productivity of labor has doubled and redoubled under capitalism, correspondingly raising real wages and the general standard of living, and with more and more workers able to afford to take jobs with shorter hours and correspondingly lower pay, the work week has fallen again and again until now it is about half of what it was at the beginning of the Industrial Revolution. Another few generations of capitalism could well achieve a world in which the average wage earner enjoys a standard of living comparable to that of the average Ivy-League professor of today in terms both of hours of work and real income earned.
To understand capitalism and how to defend it, be sure to download and read Reisman’s Capitalism: A Treatise on Economics. The book is downloadable without charge and can be printed out in easily portable small portions if one wishes. Reisman attended the seminar of Ludwig von Mises from the time he was a senior in high school until he obtained his doctorate under Mises ten years later and had to leave to teach his own classes. He was also a member of Ayn Rand’s “Collective” from 1957 until her death.
