Bank holidays & productivity

Labour wants us to have more bank holidays. There might be a good economic case for this.

My chart hints at the point. It shows that, across 35 OECD nations, there is a very strong negative correlation (of minus 0.77) between annual working hours and GDP per hour worked. Countries that work less are more productive. The French, for example, are far more productive than the UK even though they spend all their time eating cheese.

The same correlation exists over time. We work only around half as much now as we did in the 19^th century, but we’re far more productive in those hours we do work.

Of course, correlation is not causality. A big reason for this relationship is that more productive societies use their greater wealth to take more leisure.

But this might not be the whole story. It could be that the imposition of shorter working hours can help to spur productivity. Parkinson’s law tells us this. It says that work expands so as to fill the time available for its completion. If a manager knows that he has a long week to fill an order, he’ll take that long week. A shorter week could sharpen his incentives to increase efficiency.

Also, if people are working longer they get tired and jaded and so less efficient. A recent study of call centre workers has found that productivity falls as working hours rise even for people working quite short hours. This corroborates evidence from a very different industry – British munitions workers (pdf) during World War I. John Pencavel writes:

Employees at work for a long time may experience fatigue or stress that not only reduces his or her productivity but also increases the probability of errors, accidents, and sickness that impose costs on the employer…Restrictions on working hours – those imposed by statute or those induced by setting penalty rates of pay for hours worked beyond a threshold or those embodied in collective bargaining agreements – may be viewed not as damaging restraints on management but as an enlightened form of improving workplace efficiency and welfare.

France’s imposition of a 35-hour working week, for example, did seem to lead to a boost to productivity.

Of course, more bank holidays alone won’t close the massive productivity gap between the UK and other countries. But they might be one of many policies that might help.

There is, equally, a very long tradition of denying this. Nassau Senior opposed the 19^th century Factory Acts limiting working hours because he believed that profits were made in the last hour. He was plain wrong (pdf). Mightn’t his 21^st century counterparts also be mistaken?

It depends upon your view of British bosses. If you think they’re clueless inflexible buffoons, then there’ll not be a boost to productivity, because they won’t be able to rejig working methods sufficiently. If, however, you think they are smart enough to justify their big wages and egos, you’ll be more confident. From this perspective, it’s the right who should be more welcoming of Labour’s proposals than the left.

So why aren’t they?  It’s because to them, managerial control is a good thing in itself.

Herein, though, lies the radical question posed by Labour’s proposal: should the job of increasing productivity – which should be our top economic priority – be entrusted wholly to managers, or is there instead a case for intervention by the state and (in different respects) workers? Even if Labour is wrong, it is at least asking a good question.

Comments

[Matthew Moore]

Why don't we work just one day per year? I'm sure we would be super productive.

There's no mystery about diminishing marginal returns. The question is whether the marginal return still exceeds the cost. That's how total benefit is maximised, not maximising average output per hour by reducing hours worked.

[TickyW]

@Matthew

Is it better for one employee to work 40 hours producing 100 units, or for two employees working 20 hours each and producing 120 units in total?

[David]

@TickyW

Better for who or for what?

Looks like better productivity, and GDP gets a boost if they both travel 50 miles to work every day..

But then neither of them will have much free cash, if any, so in the UK consumer driven economy it would be disastrous....

I am no great thinker, or economist, but I believe that very few policies are nowadays thought through to their inevitable fate...

Many result in totally opposite effects!

[Ralph Musgrave]

If people choose to work longish hours because they want to maximise their income by any means possible, what right does Chris or anyone else have to stop them? And people DO HAVE a choice as to how many hours they work: they can choose part time rather than full time work for example.

[Luke]

Ralph, I'd take issue with both sentences of your comment. I think I have a legitimate interest in regulating the hours worked by, say, lorry drivers. Their tiredness could kill me, and when I cross the road, I have no way of knowing how much they've driven that week.

Also people don't necessarily have the choice of partvtime work - I worked at a firm that allowed 4 day weeks, but not three day weeks.

[Ralph Musgrave]

Luke, Where 'elf 'n safety is involved, fair enough: regulating hours is a good idea.

Re the firm you worked for, that particular firm may not have allowed part time work, but there are plenty of employers to choose from. Obviously it is not always easy for a particular employee to find an alternative employer in a hurry. But wait long enough, and one will appear in the situations vacant columns.

[Luke]

Ralph, I sort of take your point. But " But wait long enough, and one will appear in the situations vacant columns."

Is that actually true for insurance litigation law firms - the area I was talking about? And will it pay the same pro rata as a five day week? (There's good or at least arguable reasons why it might not.)

[Matthew Moore]

@TickyW - lump of labour fallacy. Doesn't apply, particularly when employment is at a record high / unemployment is at a record low.

Also, note that if this was true, companies would already being doing it, and turning a nice profit as well as increasing wages.

[Andrew Pearson]

There's probably a significant difference between reducing hours in a typical week and increasing the number of holidays, though. More holidays will raise productivity somewhat due to Parkinson's Law and diminishing marginal returns, but it's unlikely to do a great deal to reduce fatigue except on the day or two immediately following the new holidays.

[Ben Oldfield]

I can relate a practical example when many years ago I was working as a Mine Captain. I took over resposibility for one section of the mine and discovered that the development miners had been working seven days per week for the previous nine months. The was done to increase the rate of tunnel advance. When I introduced 6 days a week working the tunnel advanced per week increased despite working only 6 days instead of 7.

[DavidM]

"there are plenty of employers to choose from"

Please, no alternative facts here.

In most of the world, and UK of course, it's exactly the other way round: the vast majority of workers, afraid of unemployment and confronted with companies that offer the same standard work hours, all of them, have little to no freedom of choice at all. Since workers can't choose, they effectively work longer than they'd prefer. Only very few workers, in very few industries, really have that choice.

[derrida derider]

Can't you explain all this with the observation that people actually get tired? That is, marginal product is diminishing in annual hours. The French don't work their least productive hours.

Of course, a neoliberal may also claim that one reason French labour productivity is high is compositional - they keep their least productive people out of work ...

[derrida derider]

The more technical argument for enforcing shorter working hours comes out of search theory.

It's of a piece with the best argument for high minimum wages and strong unions: that it can shift things to an equilibrium where lots of high paying jobs is actually more profitable for employers. See all that Daron Acemoglu "good jobs/ bad jobs" stuff.

Like a lot of the "New Labour Economics" it actually has some pretty impressive empiric support.

[Alex]

Exactly what DavidM said, the supply of labour is millions of people greater than the supply of labour, even in quite benign economic times. There's no way workers can collectively just "choose" to work elsewhere, even if some individual ones can.

[Alex]

Sorry:

*greater than the demand for labour