Let’s say we’ve got a factory with 100 full time workers. Demand is enough to support them all getting 40 hour work weeks. Then a recession hits, and sales are down 10%. Instead of firing 10 workers, why not just cut back everybody to 36 hours a week? It may hurt a little bit everyone involved, but at least nobody needs to have their asses thrown out on to the streets.
Is our society’s attachment to the 40 hour work week hurting us? Should our government do anything to encourage shorter work weeks over lay offs?
This post was inspired by this article on the German policy of Kuzarbeit (or short-work):
That kind of thing is done here; it’s called work sharing and is also supported by top-ups from employment insurance. So, work for four days and collect pogy for one.
In some cases it could. There’s a belief that the psychology of “sticky wages” is hurting is. Likewise, “sticky work-hours” of 40 can be another facet of that same concept. What’s not consistent is that we don’t tend to hire in tiny fractional chunks of 4 hours in response to increased demand – we hire in full increments of 40-hour-a-week employees. (Yes, businesses do hire “part-timers” but they are typically 20+ hours a week – not 4.)
One of the issues I have with forced reduction of hours is that it depends on the type of staff you have. It might be better for morale to let go of 10% of the employees instead of reducing the hours by 10%. In other words, 90 remaining employees at full 40 hours might be “happier” than all 100 employees bitching and moaning about their loss of 4 hours.
First and foremost, for many people losing 10% of their income is enough to cause severe hardship. If this isn’t topped up by unemployment insurance, this may be a sufficient grop to lead to inability to pay rent/mortgage etc. The number of hourly paid people living pay check to pay check is very high.
Second, employers don’t really want it. They would rather choose which people to cut as they can pick the least productive.
Third, in many situations it may not be practical - a 24 hour production line, for example, needs three shifts - dropping 40 to 36 hours will cause major HR hassles, as new shift patterns are worked out.
Fourth - Unions hate it because employers tend not to be trustable on it. They will cut the paid hours down, then require unpaid overtime, or speed the production rate up.
There are other issues too. In general, I see where you are coming from. My Masters research was on the effect of reductions in the work week - most places find a 10% reduction in the week (in manufacturing for example) actually results in the same amount of work being performed. In that case it wouldn’t lead to the desired result (and also shouldn’t lead to lower pay).
I’m unaware of what the exact mechanism is but apparently businesses face some sort of overhead for each employee on the books, whether they’re being payed for hours or not. That was part of the reason why back in the day workers had to fight for the eight-hour workday- employers would have much rather had fewer workers working longer hours.
Well, it is pretty straight forward when there are benefits included with the employees compensation. Providing that employee with health insurance costs the company the same whether they work 5 hours or 40. Other factors may come into play depending on what the job entails, such as allocating office space, computer support, etc.
This sort of micro-management of business practices isn’t the sort of thing the government should be involved in. There are times when it makes sense to do this, and times when it doesn’t. One size does not fit all.
Layoff periods also permit companies to eliminate their least productive workers (assuming they are not a unionized shop, or their labor contract will permit it). When volume picks back up the company has a an opportunity to replace those less productive workers with more productive workers.
Also, I get compensated based upon my performance, not the average of the performance of the people around me. If there are lay-offs I can be pretty sure that I want be in the first 50% of people let go. Why should I let my own compensation be cut by XX% just so that less productive employees can be kept around?
Also if the work hours were cut under “full-time” employment many employers can cut off workers benefits like medical coverage.
I as a full-time employee with medical and dental coverage would not be happy if my employer cut my hours to 36 a week and then claim because I am not full-time anymore I do not qualify for the medical and dental coverage. I would quit and go find employment at a place where I could work full-time and get those benefits.
As has been already mentioned, companies tend to abuse this sort of thing. For example, look at retail employment. There are many workers who do 40 hours a week, when the company will give them that much, but are still classified as part time. They don’t have benefits, they don’t have a promise of hours, they don’t have a stable income, and they rarely have any chance of getting those things.
OTOH, if you don’t mean moving people to part time and the lower benefits that implies, then you have to factor in benefits. If you cut 100 employees hours by 10% you still have one hundred insurance plans, one hundred retirement accounts, one hundred of whatever benefits the company provides. Add in the overhead of paperwork for one hundred people, one hundred government mandates to be followed (social security, IRS reporting, etc), facilities to support a staff of one hundred, and so on. The company is still paying a lot of money to keep those people even if they all work less hours. If they lay off 10 people then all these costs get cut by 10% as well as the savings in hours paid.
Plus there are a fair number of regulations which are applied to any company over X employees. In some cases, laying off employees would drop below that threshold. Since having to meet regulations generally costs more, that can be an incentive to fire people instead of cutting hours.
I have heard of companies in America doing this though, but they’re usually smaller companies. At least the one place I used to work for that did this back in the recession after the dotcom blowup. The company only had 14 employees. The owner was friends with everyone working for him, so he felt a sense of obligation to not fire someone if he could at all avoid it. Also the employees were all friends with each other, so were more willing to sacrifice some to keep their buddy in a job. Contrast this with large companies where top management sees numbers instead of employees, and employees may not even know the name of the guy in the next cubicle much less care about what happens to him.
You may wish to consider the possibility that you’re overestimatingyour own productivity, or underestimating the productivity of others (when I say “you”, I mean it in the generic sense, not you personally). A lot of people seem to think that it will be that other jerk who gets layed off, and it couldn’t possibly be them. Nope, no siree. Never.
Employees are expensive, they come with fixed costs in addition to hourly or salary rates.
If you are a good employer you are probably providing some level of benefits. Health and life insurance, dental, 401k match, paid holidays and vacation, etc. You could easily be providing 45% fringe benefits, meaning that the actual cost of a $100,000 per year employee is $145,000. (Just using round numbers to make the math easy, don’t get hung up on them.)
Or you are a bad employer and you don’t provide anything you aren’t required to. Still there are various kinds of expenses per employee, liability insurance, workmans comp, equipment, supplies, FMLA (family medical leave act), training is a big expense, hell, even the added workload for your accounting and human resources staff should be taken into account, and so on. Each new employee has set-up and maintenance costs that are going to be there whether you use that employee a little or a lot.
In both cases it is usually more cost effective to work fewer employees more hours than it is to hire extra personel. Even when you have to pay time and a half for overtime it still makes better financial sense to just pay the overtime rather than hire more people because of the extra, fixed costs associated with each employee.
During the last few years, I’ve heard of a few companies in my industry doing this. But I heard of many more companies keeping people ata full time, but giving them a pay cut. I took an 8% pay cut (in the form of no retirement benefits paid by the company) in addition to several years of no pay raises.
Why settle for less hours worked when you can just pay less per hour?
Under the german model, the government makes up the 10% for those who fall under the poverty level. It’s cheaper to pay 10% than 60% unemployment.
The government also does this with some business branches like building: during the winter, no houses etc. can be built because of frost and bad weather, so instead of laying off employees and re-hiring, the employees are paid a lower “Winter” salary to tide them over.
This, however, is just a bad, bad management technique. If you have unproductive employees, you let them go as soon as possible, while hiring new, better ones. The assumption that the bottom 10% are always the worst and can safely be let go is idoitic - there will always be a bottom 10%, no matter how often you cut. And, the people who work already in your company at least now the ropes, new people have to be taught again (esp. under the American level with no proper qualification through apprenticeships, just learning on the job).
Also, keeping people employed, just with fewer hours, means that they will keep spending and stay mentally healthy. People who are unemployed and despite writing 50 or 100 letters of application, can’t get a new job, start feeling depressed, hopeless and unwanted. They spend the time sitting at home, watching TV, instead of going outside, buying things.
If employers are not to be trusted, that’s bad, because it means any contract with them is useless.
Well, some overhead is fixed - you need x HR persons to calculate wage and taxes etc per y employees. But most overhead is related to income in percentages of the wage: the employer half of health insurance, and so on.
That sounds as if you believe that the government mandates all companies, regardless size or business branch, to take part in this? Nobody said that. Back in the 80s, some unions fought for a reduction of the 40 hour week to save jobs with the shorter hours, less pay model, while in other areas, the unions wanted a longer job week with the same pay (which also comes out as a pay cut), depending on whether there was more or less work to do. What happened was the government making laws allowing different schedules than the 40 hr week if both parties desire it.
The same a few years ago: some companies moaned that keeping all their employees when the amount of work had dropped 100% or more was impossible, while others wanted to keep their experienced workers. So what did the union and employers group do? They signed an agreement with three models, depending on size of the individual company, and giving the option for each individual company to choose in accordance with the employees council and the employer for that company what model they wanted to follow.
The last sentence in this paragraph seems to argue against everything before it. Training people is indeed a hassle, so why not hold on to what you have until it becomes necessary to trim the rolls? If you have to cut back by 10 people, you drop the 10 least productive employees, and you’re not actually hiring anyone new for the time being.
I would say that’s the fault of the US government for not making better laws to protect the employees (to compensate for the power inbalance) and then properly enforce them.
Several years back, when Kurzarbeit was being applied for all over Germany, a TV report* (Report? Monitor? Fakt? One of these) went looking and found that lots of companies were abusing it by claiming that people were working part-time, when they really were working full time again because the work had increased. Later, the agency for work, the federal bureau in charge of paying the money and controlling it, admitted to being a bit short-manned, and claimed that it was better to pay out first and look later than control first.
Usual disclaimer about the huge difference in quality between US and German TV applies.
Huh? I don’t understand how it disproves. If you as manager know that 10 of your employees are ineffective, then it makes sense to go looking for better ones right away, because every day, they will earn the same money but produce less than a good employee. Why wait until the economy gets worse? You might not find 10 new good ones right away, but you keep looking and replace them as you find good ones.
Once people are trained and are working with adequate efficiency*, you keep them, because training new people is more expensive.
I strongly suspect that the management types who just cut the bottom 10% of the workforce don’t know how effective these people really are, otherwise they would have been cut much sooner; it’s just that that is the easiest way to make that cut, for those clueless managers who know neither their employees, their skills, the skills required, or how to manage things and look for alternatives.
The same way that kicking out a bunch of employees just before the quarter is up is the dumbest, quickest way to raise profits by reducing spending, no matter how many of these people were good, or necessary to cope with the work in the next quarter. Just hire x number of people to replace x+500 fired, and on paper everything looks fine. In real life it’s just dumb.
I mean that it is unrealistic and against the laws of nature and statistics to expect everybody to work 110%, or that 100% of the employees are fully effective. People are different, and half of a group is below average. If a few people are able to work more than 100% then you can even out a few who only manage 95%. It’s only if one person dips noticeably below, has no skill at all for any task you might have, or if other factors like morale or govt. regulations come into play - one person works fixed hours because she is a single mom, but is good for morale / one person is a huge jerk so you want to get rid of him as soon as possible; one person is protected class and can’t be fired no matter how often he screws up simplest tasks.
