On 27 January 2015 the Swiss government announced that Swiss companies could reduce their wage bills by cutting staff working hours and compensate them for the lost pay with partial unemployment benefits. The objective of the measure is to limit layoffs brought about by the rapid rise of the Swiss franc. Companies are required to demonstrate that the need is driven by the strengthening of the franc.
While this might be an effective way to reduce short-term layoffs it is an economic own-goal. If Swiss workers work less, they will produce less and reduce company output. This will in turn reduce national output increasing the possibility of a recession. It will also eventually require an increase in taxes (or payroll taxes) to pay the additional unemployment benefits thus reducing the take-home pay of all workers. Thinner wallets will then reduce aggregate spending power negatively impacting on the demand side of the economic equation aggravating the problem further.
It is akin to the French 35-hour week. The logic ran that if staff could only be hired for 35 hours a week then employers would need to employ more of them. It assumes that output and the demand side of the economy are unaffected. This policy, introduced in France in 2000 failed to deliver. The challenge to this thinking is that it is based on the lump of labour fallacy, a belief that the number of jobs is fixed. Most economists believe it is variable.
In an interview with the SonntagsZeitung Peter Spuhler, the boss of Stadler Rail, made an alternative suggestion to address the challenges of the strong franc. He suggested that workers work an extra two hours a week for the same pay. This is based on sounder economic logic. It would hopefully increase output and revenue (or at least maintain it after CHF price reductions) relative to existing wage bills allowing businesses to avoid layoffs. In addition, it would maintain aggregate spending power by avoiding the inevitable increase in payroll taxes that will be required to pay the additional unemployment benefits that will result from the Government’s plan.
Federal Press Communiqué – 27 January 15 (in French)
Shorter work hours touted in response to strong franc (Swiss info – in English)
Perhaps the people at the top could reduce their wages by a few millions
Phil Hyde says
It’s amazing to us dumb workaholic Americans, working more and more for less and less & creating a wage-depressing oversupply of…ourselves, it’s amazing that so few Europeans seem to know what they are doing right in terms of using technology to deliver more of the most basic of human freedoms, financially secure Free Time. In this article, not only do we have the outrageous suggestion (if serious) by a Swiss CEO (Spuhler) that his employees should work 2 extra hrs/wk for no extra pay = 2 hours of unpaid work = slavery, but also the frequently heard ignorance of the success of the French workweek reduction from 39 to 35 hrs/wk 1997-Jan/2001. it SUCCEEDED in reducing unemployment 1% for each of the 4 hours cut from the 39-hour workweek. In 1997 when it was voted in, French unemployment was 12.6%. Once the 35-hours was fully implemented for large and small companies by early spring 2001, unemployment was down to 8.6%. Then France got hit by the US-led recession and unemployment went back up to 10-point-something because no frozen workweek is adequate when every other variable is varying. More info on timesizing.com. A work week that was furtther downward-adjustible, plus more-targeted efforts to convert chronic overtime into training and hiring, would have kept French unemployment at 8.6 or less.
Sometimes working fewer hours (or making any number of other improvements to working conditions) will improve productivity and output. This will not apply to all work however. Where it does apply, implementing such changes is surely a win-win that employers can implement themselves. Those employers who do will attract the best people, grow and nudge market employment practices in a better direction.
Crude one-size-fits-all policies forced on the market by Governments like the French 35-hour weeks are surely the wrong approach. You state that the 35-hour week reduced unemployment. This is most likely correlation with little causative link. It also too high level – if causative links can be found they will most likely be found at a company (or possibly industry) level and not across all kinds of work across an entire economy.
A November 2014 report put France’s unemployment rate at 10.3% while Switzerland’s was 3.4%. Switzerland has one of the most flexible labour markets in the world and France one of the most rigid. Blanket rules such as the 35-hour week are part of this rigidity. Do flexible labour rules deliver low unemployment? i.e. is there a causative link? Many would agree there is – if businesses can reduce staff levels easily and at low cost they will be more likely to hire. In addition, if unemployment is low companies must offer good conditions to attract the people they need driving a virtuous cycle.
So while I agree that reducing hours can be beneficial in some contexts, I think such changes are best implemented by those best placed to implement them: employers. The best way for governments to help employers implement them is to create flexible labour rules. If unemployment is the measure then Switzerland’s experience strongly suggests that this works.
The author’s reason is predicated on a false assumption: If Swiss workers work less, they will produce less and reduce company output. There is no proof that reduced hours directly correlate to reduced output. In fact, I have read many studies suggesting that people can be more efficient with shorter work weeks… Project Management studies often show productivity to be below 40% due to a variety of office-related interruptions and fatigue. Improve workers’ lifestyle with shorter work week and more efficient use of time, the results could be quite positive.
Thank you for your comment. That less work will reduce output is a simplifying assumption. As you suggest there will of course be exceptions depending on the work environment and the nature of the work. Supporting your thinking, was a study that showed French workers in aggregate to be some of the most efficient in Europe. In certain environments where your assumption holds true the best approach would be to break the link between time spent working and pay. The logic flow would then be: work less, produce more, maintain current pay levels. Companies would be best placed to do this themselves removing the need for Government to intervene with a measure that creates the drag of increased payroll taxes (to pay partial unemployment benefits) on all workers. Your logic won’t hold true for all work though. A truck driver who drives less will deliver less. I think your point is sound but it calls for a more granular policy that looks at each business specifically rather than the Swiss Government’s latest measure which is a one size fits all approach which has a negative impact on aggregate demand.