Saturday, 28 January 2012

Work less for a better pension

Yesterday's post was too big. I ended up combining three days worth of musings on different topics, linked by the lump of labour fallacy. The common thread was the future of work: who should work and how long should they work for?

Today I came across a paper that points out that the lump of labour fallacy is itself a "counterfeit", being a straw man that is usually wheeled out to invalidate claims that reductions in working hours or work-sharing are beneficial for labour, even when such claims are not being made.

Marginally reducing hours, but not increasing headcount, seems to lead to improvements in productivity so that output levels are maintained. This makes intuitive sense. No one works at a constant rate, even on a production line. Small, probably unconscious, adjustments in work speed and the frequency and duration of breaks can easily accommodate a marginal variation in total hours.

Work-sharing also appears to boost productivity, to a degree that more than covers increased overheads due to fixed (per employee) costs. However, there is a timing problem with the introduction of work-sharing, namely that the higher fixed costs are incurred immediately while the boost to productivity takes a few weeks or months to arrive, due to reorganisation, training and other lag factors.

One way of avoiding this is to recycle productivity gains into reduced hours, i.e. by gradually reducing the working week in line with improved productivity. This would be on a results basis, i.e. the reduction would follow the gain.

In reality, such gains are dissolved into profit, which is then divided up in the usual way. As we know, employees have tended to lose out relative to company managers and owners. In other words, the current working week represents a subsidy to capital, which is why it hasn't fundamentally changed for a century despite technological improvements.

Correction. For many professions, the length of the working week has actually increased. Ironically, much of this is the result of technological improvement, e.g. remote access and BlackBerrys, combined with a cultural norm that values presenteeism and macho striving (lunch is for wimps). The sociological gulf between the work poor and the time poor is a popular trope, particularly among the latter.

The remorseless logic of capitalism is to reduce labour costs to zero, as this maximises profit. The externality of impoverished consumers (i.e. no one to buy your products) is trumped by the short-term gain for those businesses that are ahead of the curve.

A productivity remittance does not necessarily have to be made in shorter working hours. If the difference between increases in productivity and actual wage increases had been remitted to employees in mandatory pension contributions over the last 30 years, then we wouldn't have a pensions crisis today. We might even have avoided raising the state pension age.

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