Hours of Work: Moving Beyond
Gridlock Tom Walker
We declare that the
limitation of the working day is a preliminary condition without which all
further attempts at improvement and emancipation must prove abortive . . .
- Resolution adopted by the Congress of the International Working Men's Association, September 1866.
. . . unless . . .
An employer shall, in
addition to all other amounts due to an employee, pay an employee who works
more than the number of hours specified in section 28 . . . one and one-half times his regular wage for
all hours worked in excess of 8 in a day, and 40 in a week . . .
-- Sections 28 & 30, B.C. Employment Standards Act.
The policy dilemma
The dilemma that both over-employment and under-employment are increasing at the same time is an urgent concern of public policy. In "Earnings Inequality and the Distribution of Working Time in Canada." Morrisette, Myles and Picot concluded that the "rising polarization in hours worked explains much of the increasing earnings inequality." At the bottom of the earnings scale, the polarization of work time reflects increasingly unstable employment patterns. At the top of the scale, it reflects the lengthening of annual hours worked by more highly-paid, full-time workers.
Various explanations have been offered for the polarization of work time. According to one explanation, a widening skills gap leaves some people behind even while high-skilled jobs go unfilled. Another account sees technology as destroying jobs faster than it can create new ones. Yet another blames the gap on slow economic growth.
This paper contends that the polarization of work time is not simply a result of slow economic growth, rapid and unassimilated technological change, or disparities in skill -- it is the main source of those difficulties. The maldistribution of work time remains the greatest obstacle to economic and social progress. Besides providing a policy direction that could achieve greater social equity, the redistribution of work time may offer the best way to recast economic policy issues to make them more amenable to decision making and policy making.
The policy cuckoo
The cuckoo bird is notable for its parasitic behaviour. Instead of building its own nest, the cuckoo lays her eggs in the nest of a bird whose eggs are a similar colour. After it hatches, the cuckoo chick kicks its foster siblings out of the nest and remains alone to be fed by its hapless foster mother.
Premium pay for overtime work is the policy cuckoo in the work time nest. The insatiable hunger of this intruder has thwarted the emergence of genuine, effective policies to limit work time.
In the U.S., the Fair Labor Standards Act of 1938 (FLSA) introduced a premium of time and a half for work in excess of eight hours a day or 40 hours in a week worked in the conduct of interstate trade. Since that time, the application of the act has been broadened and similar legislation has been adopted in other jurisdictions.
In Canada, the employment standards of most provinces require premium pay of time and one-half the employee's regular rate for overtime work. Three provinces -- New Brunswick, Newfoundland and Nova Scotia -- establish the overtime rate as being one and one-half times the minimum wage.
Popular thinking about the overtime premium seems to consistently overlook one crucial point. The intent of the law on overtime is expressed in the section limiting the daily and weekly hours of work. The overtime premium deals with exceptions to the law. It is a loophole that has somehow managed to pass itself off in the popular imagination -- seen by working people and labour activists alike -- as the very incarnation of the spirit of the law.
The overtime premium provision was meant to regulate the exceptional case. But the exception has been taken for the rule; the loophole has been taken for the whole; and all of us have been taken for a ride.
An econometric cuckoo, too?
Econometric studies have long questioned the effectiveness of overtime premiums as a deterrent to overtime. Ronald Ehrenberg's 1971 analysis of Fringe Benefits and Overtime Behavior found that the deterrent effect of the overtime premium had been largely offset by the growth of fixed nonwage labour costs that had occurred in the two decades after the end of World War II.[1] Ehrenberg's study looked at a sample of 4,000 establishments across 16 manufacturing industries, employing a total of over six million workers.
Ehrenberg's research on fringe benefits followed up on less systematic but widespread observations that were heard from the business press and government analysts in the early 1960s. Joseph Garbarino's 1964 article, "Fringe Benefits and Overtime as Barriers to Expanding Employment," referred to the growing "consensus [among business, government and labour] about the role of 'fringe benefits' in weighting the choice in favor of overtime." As an example of this emerging consensus, Garbarino cited a 1963 Business Week article, "Unions Mount Attack on Overtime," that reported "even AFL-CIO officials concede what employers have long since held: It's cheaper to pay overtime rather than hire additional employees with the heavy fringe costs that go with each worker."
Chart 1 shows the growth of fringe benefits in the U.S. manufacturing sector for 1957-79 and 1981-93. Comparable data for Canada are not as readily available. Although the two sets of data differ in how they define employee benefits, the trends are clear. Fringe benefits rose steeply during the 1957-79 period and continued to rise at a slower pace from 1981 to 1993.
Other factors, besides fixed nonwage costs, may also be at work undermining the effectiveness of the overtime premium. In his examination of "The Effects of Overtime Pay Regulation on Worker Compensation," Stephen Trejo found that employers make wage adjustments to mitigate (although not completely offset) the effects of overtime premiums.[2] This is a special case of the expectation, commonly stated by economists, that employers pass on the cost of payroll taxes to workers in the form of lower wages. Trejo gave the following example of what he calls the "fixed-job" model in which lower wages could entirely offset the overtime premium:
suppose that in the absence of overtime pay regulation a job pays $550 per week and requires 50 hours of work, so the average wage is $11 per hour. An employer may satisfy the FLSA by reducing the straight-time wage to $10 per hour and paying time and a half for the 10 overtime hours. The employee works 50 hours and receives $550 per week in either case; consequently the law has no real effect.
Although they might lower the cost of overtime, it seems unlikely that wage adjustments by themselves could have a major effect on an employer's decision to use overtime instead of hiring new workers. Even if an employer were completely free to set wages, the new wage level would still maintain a differential between overtime and regular pay, thus continuing to offer the employer an incentive to hire more workers rather than extend the hours of work.
Combining Ehrenberg's and Trejo's analysis produces a picture in which much of the overtime premium is offset by fixed nonwage labour costs and a smaller part is offset by wage adjustments. Outright noncompliance with the law is more common near the minimum wage level, where benefit substitution and wage cuts are not feasible. After accounting for fixed costs, wage adjustments and noncompliance what remains of the overtime premium is that it perhaps discourages some overtime in some low-wage jobs.
Nevertheless, when the issue of curbing overtime and redistributing work time is raised, proponents often seize the first policy tool at hand -- the overtime premium -- and recommend augmenting it. For example, John Zalusky, head of Wages and Industrial Relations at the AFL-CIO, has long championed increasing overtime compensation from time and a half to double or triple time. In Zalusky's view, the fundamental purpose of the overtime premium was to discourage regularly scheduled overtime. The fact that it no longer serves that purpose, he believes, can best be addressed by adjusting the size of the premium.
In the early 1960s, the AFL-CIO campaigned for an increase in the overtime premium, backing legislation introduced into the U.S. Congress. That bill would have required employers to pay double-time for overtime. Again, in the late 1970s, legislation was introduced to increase the overtime premium to double time and set a threshold of 35 hours after which the premium would apply. Mainstream economists routinely scoff at such proposals as unlikely to create as many jobs as hoped. Employers rail against them as too costly and as potentially harmful to job creation. Perhaps most importantly, they fail to inspire widespread public support to the issue of limiting work time.
But if the proponents of double time seem heedless of experience, the economists who criticize such proposals could possibly be too subtle and sophisticated in their analysis. A rule of thumb to guide policy analysis should be: an ounce of field work is worth a pound of theory, or: never do statistical regressions when a simple cost calculation will tell the whole story.
After Ehrenberg completed his study of the relationship between fringe benefits and overtime, he turned his attention to the job creating potential of increasing the overtime premium. Ehrenberg concluded that such proposals were unlikely to generate the number of jobs claimed, mainly because the resulting higher labour costs could lead employers to substitute capital for labour and because the higher prices resulting from higher labour costs could lead to lower total demand.
The puzzling thing about Ehrenberg's argument is that it doesn't address the possibility that an increase in the overtime premium could stimulate a further increase in fringe benefits, which could, in turn, offset the increase in the premium. However, if we accept that the rise of fringe benefits may have been -- at least in part -- a strategic response by employers to the overtime premium, then the best argument against increasing the premium would be its futility.
What evidence might there be for suspecting that the rapid rise in fringe benefits after World War II was a strategic response from employers to the overtime premium? To answer this question, we need to leave aside theoretical models and look at the formula management uses to cost labour contracts. For the rise in fringe benefits to have been a strategic response, doesn't require that it had to have been a conscious response. Strategic choices can be based on summary information without the decision maker being aware of precisely why one option seems to offer an advantage over the other.
While preparing a research proposal on the issue of work time redistribution, I spoke with Csaba Hajdu, research director for Forest Industrial Relations -- an employers' organization that conducts collective bargaining for member companies. Hajdu had no hesitation in stating what he saw as the relevant data: cost per hour actually worked and annual hours worked per employee. When Hajdu mentioned $38.80 as the cost per hour actually worked at the benchmark millwright's rate, I was immediately struck by how close this figure was to one and one half times the basic wage rate for that classification (around $25 an hour). As the Bob Dylan song went, "you don't need a weatherman to know which way the wind blows."
Rather than press Hajdu further on his exact method of calculation (and armed with a working knowledge of basic accounting and cost control principles), I spent a few hours building a spreadsheet model to cost a sample collective agreement between Forest Industrial Relations and the Industrial Woodworkers of America, Canada. I suspect my model is quite similar to Hajdu's -- my results were almost identical, even though my data was undoubtedly less complete.[3]
Working with a cost accounting model produces some remarkably clear insights into the structure of compensation packages -- insights that the econometric models are unlikely to produce. The model demonstrates the logic of the following proposition:
Given the following conditions:
· an overtime premium;
· a wage rate higher than the minimum wage by a factor at least equal to the overtime premium;
· workweeks that on average are higher than the legal maximum; and
· a fixed nonwage labour cost that is lower, as a proportion of total straight-time labour cost, than is the overtime premium as a proportion of overtime pay[4]
Then:
A wage and benefit package that contains a higher proportion of fixed-cost benefits will cost the employer less than an offer for the same nominal percentage increase, but which contains a lower proportion of fixed-cost benefits.
This is just a another way of saying that the nominal offer doesn't take into account the overtime premium but the cost calculations do. The key issue here is not the arithmetic itself, but the rhetoric of calculation that diverts attention away from doing other arithmetic.
Chart 2, below, shows the curve for the cost per hour worked, given an overtime premium of time and a half and no fixed labour costs. The following Chart 3 shows how a 1/3 proportion of fixed labour costs entirely offsets the time and a half premium.
Favourable treatment given to employer-paid fringe benefits makes them look like an even better value for both employers and employees. Meanwhile, it distracts attention from the fact that the fringe benefit gives the employer a less obvious tax exemption -- an exemption from the overtime premium.
To be sure, fringe benefits have other features to make them attractive to both employers and unions. For unions, a negotiating package of diverse benefits can help build a coalition of support among union members for a negotiating strategy. For employers, fringe benefits are a way of ensuring a more stable labour force and of moderating the costs of automatic wage escalation in a multi-year contract. But such other attractions of fringe benefits complement, rather than contradict, their appeal to employers as a way to save on overtime costs.
A closer look at costs
Question: When does two plus two not equal four?
Answer: When one of the twos is fixed and the other is variable.
Arithmetic is easier to digest than algebra, so I'll state the employer's labour cost calculations here with numbers instead of letters. For one employee, assume an hourly wage rate of $16, an overtime premium of 50 percent (time and a half), a fixed-cost benefit package totaling $160 a week (independent of the number of hours worked), a standard workweek of 40 hours and an average workweek of 43 hours -- that is, an average of three hours of overtime per week. Then the average cost per hour worked equals ($16*43+$8*3+$4*40)/43, or $20.28. Note that the regular wage plus benefit package equals $20 an hour.
Now assume two alternative ways of structuring an"8 percent" increase in the basic package. The first calls for a 10 percent ($1.60) increase in the base wage rate. The second calls for a 5 percent($.80) increase in wages and a 20 percent ($.80) increase in fixed cost benefits. Both offers add up to nominal total of $1.60. However, the first package has a cost of $21.93 per hour worked, while the second package costs $21.85. The eight cent difference represents the savings from not having to pay an overtime premium on the benefits portion, or indeed any of the fixed cost benefits during the three hours of overtime (.80*1.5*3/43). Table 1, on the following page, shows how the cost per hour worked decreases as the component of fixed-cost benefits increases.
Table 1
|
Wage
increase |
Fringe
increase |
Cost per
hour worked |
|
$1.60 |
$0.00 |
$21.93 |
|
$1.20 |
$0.40 |
$21.89 |
|
$0.80 |
$0.80 |
$21.85 |
|
$0.40 |
$1.20 |
$21.81 |
|
$0.00 |
$1.60 |
$21.77 |
It should be emphasized that the differences illustrated in the above table are small. Indeed, subtlety may well be the key to their power because, although they are small, these differences are persistent and pervasive. Burning issues of the day come and go but the small cost slope in favour of fixed-cost fringe benefits is always there -- at least until the proportion of fixed costs exceeds the ratio of the overtime premium to total overtime pay.
In the above example, the cost advantage of the $.80 wages and $.80 benefits package amounts to only 1/3 of a percent of the total hourly cost. But imagine a roulette wheel with just a slight incline favouring one of the numbers. Imagine the slope is just enough to change the odds from the traditional one in 38 to one in 35. With a payoff of 36 to one, a player who consistently bets on the favoured number has an advantage on every spin of the wheel. The advantage is small, less than 1/10 of a percent, but over the course of a year, limiting himself to just 10 bets a day, the player could increase his stake 18 times. By increasing his limit to 20 bets a day, he could increase his stake more than 300 times. At 50 bets a day, his stake would increase by nearly 2 million times over the course of a year.
Betting against a sure thing?
Betting on a fixed roulette wheel is an example of what is known as a "sure-thing" in the field of decision theory. But why would anybody ever bet against a sure thing? In his article, "Risk, ambiguity and the Savage axioms," Daniel Ellsberg showed that decision makers consistently bet against their judgement of the best odds in situations where the better outcome is also more ambiguous.
Collective bargaining provides perhaps the best illustration of a situation where two sides are dealing with different degrees of ambiguity and therefore are inclined to place different stress on the odds. The employer can focus on the straight-forward cost calculations. But the union must always deal directly with the much more ambiguous question of acceptance by the membership of any negotiated settlement.[5] From the union side, the hourly wage rate and itemized fringe benefits are less ambiguous than the employer's calculation of cost per hour actually worked. Unions are understandably reluctant to tamper with such apparent certainty, even though the probable outcome can be shown to be unfavourable.
After I had become confident with my cost calculations, I spoke with Jef Keighley a national rep with the Canadian Auto Workers Union (CAW). The CAW is arguably among the more progressive trade unions on the issue of work time. We talked about my suggestion that unions may benefit from a move from fixed-cost fringe benefits to benefits tied to either total earnings or hours worked. I explained to Keighley that such a move could allow for the voluntary negotiation of shorter work weeks, where wanted. Here is his objection: if the employer makes a variable, rather than a fixed-cost contribution to benefit plans, any reduction in work hours would result in either a partial loss of benefits or a loss of pay, if part of the wage were used to make up for the reduced employer contribution.
What Keighley is saying is that the union can't ask workers to risk losing some pay or benefits now in exchange for the more ambiguous promise that an effective limit on work time could, in the long run, enhance the union's bargaining position. What unions would prefer to do is guarantee an existing package of wages and benefits -- which are exalted in the union's self-portrait as historical gains -- and then seek work time reductions as an extension or supplement to those gains. The weakness of such a approach might be clearer if the given level of wages and benefits were seen as the result of "trade-offs" rather than as absolute "gains".
The union defense of achieved levels of pay and benefits is understandable, but it is not entirely justified. It neglects to acknowledge that current levels and structures of pay and benefits have been achieved partly in return for concessions on the limitation of work time. Those who have lost the most from these concessions are those who are not fortunate enough to have the security of a union job. But increasingly, over the past two decades union members themselves have been suffering the consequences of a bad strategic choice.
Contrast the modern attitude of putting pay and benefits first with the words of an English factory inspector, R.J. Saunders, published in 1848 in the Reports of the Inspectors of Factories: "Further steps towards a reformation of society can never be carried out with any hope of success, unless the hours of labour be limited, and the prescribed limit strictly enforced."
The taxman giveth and the taxman taketh away
Economists consider overtime premiums to be a kind of tax, the proceeds of which go to the employee instead of to the government. It may come as a surprise that those "proceeds" end up being a negative sum, after deduction of income tax from the worker's overtime pay. After taxes, the worker receives less in take home pay and benefits from working an hour overtime than from working a regular hour.
Here is why: almost all of the overtime compensation is taxable as income while a substantial portion of regular compensation is in tax exempt benefits. Furthermore, the worker would have already applied personal deductions and other tax credits on the earnings from straight-time work. And, as the worker's income moves into a higher tax bracket, the tax on the overtime pay is at a higher rate than the average paid on the straight-time income. My calculations (using Canadian tax rates and deductions) suggest that, over a wide range of incomes, the worker gets to keep about 85 percent as much of overtime pay and benefits as of regular pay and benefits.[6]
But there is another consideration that distorts the comparison of overtime pay and regular compensation. Governments undoubtedly adjust tax rates to recover the revenues they have forfeited by giving a tax exemption for fringe benefits. The exemption is, after all, a tax expenditure that, unless it is matched by new sources of revenue or cuts in government services, will result in a fiscal deficit. A familiar parallel is when pubs offer a "free lunch" and incorporate the cost of the food in the price of the beer. The free lunch is not really free but is a compulsory purchase tied to the purchase of beer.
So, not only do premium pay for overtime and generous fringe benefit packages represent a trade off in exchange for relaxing the limit on work time, their worth is greatly exaggerated. In the fun house mirror of gross earnings and tax-exempt benefits, the rewards of working long hours appear substantial. After taxes have cut that gross down to size, a bewildered and resentful worker is left to contemplate shrunken remains of his[7] hard-earned pay.
The undertime tax
Up to now, this essay has discussed the overtime premium and the factors that diminish its effectiveness as a policy tool for limiting work time. It's bad enough that the limitation of the work time has been bypassed by a loophole and that even the fee for using that loophole has been waived by yet another loophole. But there is yet a further irony: given current structures of compensation, it is often cheaper for employers to increase the hours of work above the legal maximum than it is to reduce work time the same number of hours below that maximum. In keeping with the definition of the overtime premium as a tax, it is appropriate to call the excess cost of reduced work time an undertime tax.
For example, if 17 percent of total labour costs for a 40 hour week are fixed, it is more expensive to reduce work time by eight hours a week than it would be to increase work time by the same number of hours (Chart 4). As the fixed labour costs rise to 18.5 percent range, it becomes more expensive to reduce the work week by four hours a week than to increase it by the same number of hours (Chart 5). And at 20 percent fixed costs, any reduction in work time is more expensive than would be the corresponding increase in work time (Chart 6).
To make matters worse, the choice faced by employers would typically be between reducing work time by a greater number of hours and hiring more workers or increasing the length of the workweek by a lesser number of hours. For example, starting from a 40 hour week in which 20 percent of labour costs are fixed, a reduction of the work week to 36 hours adds 2 percent to the cost of labour, but an increase to 42 hours would add only 1 percent.
Let's review the logic of the argument so far: the overtime premium, while permitting the exceptional use of overtime, was intended to discourage the regular use of overtime. But, the offsetting effect of fixed labour costs undermined the premium as a disincentive for the regular use of overtime. As those fixed labour costs rose above a certain threshold, they became a barrier to the reduction of work time. Because the cost of reducing work time has become greater than the cost of scheduling overtime, adjustments to work time are now more likely to result in overtime than in shorter work time. Not only is the overtime premium ineffective in discouraging regular overtime, it is now producing an effect opposite to its intent.
Prisoner's dilemma
The calculations presented above may leave the impression that the workers' loss is always the employers' gain. It ain't necessarily so. The cold, hard cost calculations could easily mask real, but much more difficult to measure, losses: lower labour productivity, reduced demand from constricted consumer purchasing, increased taxes to pay for the social costs of unemployment, etc. The net effect is to make everyone worse off and at the same time reluctant to give up the "safeguards" that are ensuring their misery.
The prisoner's dilemma is a story used in game theory to show the difficulty of rationally analyzing certain kinds of decisions. In the story, two criminals are captured near the scene of a crime and interrogated separately by the police. If neither of the criminals confesses, then both of them will be charged with a lesser offense and serve one year in prison. If both confess and implicate the other they will both go to jail for 10 years. If one confesses and the other doesn't then the one who confesses will go free and the other will go to jail for 20 years.
The strategies in the game are to confess or not confess. The payoffs are the sentences served. A rational analysis of the options by each of the prisoners will convince them both to confess and they will both go to jail for 10 years, even though the better outcome would have been for both to keep silent and go to jail for only one year.[8]
The prisoners dilemma presents a highly simplified decision situation, but it may provide some insight into why perfectly workable solutions to unemployment seem impossible to implement. For example, proposals for worksharing unfailingly fall on the aggressively deaf ears of government and business. Even labour's traditional support for such proposals tends to contain more rhetoric than substance. It's worth reviewing some estimates of the potential payoff.
In "Working Less and Enjoying it More," Frank Reid discussed the job creation potential of voluntary work time reductions. Reid based his estimates on a survey of employee attitudes toward work reduction conducted by Statistics Canada in 1985. Reid's definition of voluntary work time reduction included only the number of hours by which respondents said they would like to reduce their work time and for which they were willing to give up an hour's pay.
How closely those 12 year old survey results reflect current attitudes is uncertain, but Reid's estimates were meant to highlight a possible direction, not give a precise projection. Reid estimated that voluntary work time reduction alone could reduce unemployment in Canada by 3 to 4 percent.
A further reduction in unemployment could be achieved by reducing the amount of regularly scheduled overtime worked. Typically, about two-thirds of all paid overtime is regularly scheduled. The Advisory Group on Working Time and the Distribution of Work estimated in 1994 that if one-half of the paid overtime were converted to new jobs, it could mean an additional 80,000 full time jobs, or a reduction in unemployment of another half a percent.
Both estimates contain conservative assumptions about how much of the time not worked by one group could be converted into new jobs. But together the two figures add up to a 3.5 to 4.5 percent reduction in unemployment, or 500,000 to 700,000 permanent full-time jobs. This is about the same number of jobs as have been created over the past four years through economic recovery, although the latter total includes both part-time and full-time jobs.
Of course, there is plenty of room to dispute the estimates. The impact of policies to promote work sharing could be much greater than Reid and the Advisory Committee estimate if more people are attracted to shorter work time once it becomes a possibility, instead of just an idle dream. The impact could be much less if people prove to be more willing to say they would forego income than to actually do it. But the federal government doesn't seem eager to find out one way or the other. And support for worksharing from business or labour usually comes with reservations attached that the other party is unwilling to accept.
Beyond the fringe
The length of the workdays . . . has historically been the central issue
raised by the American labor movement during its most dynamic periods of
organization.
-
Roediger and Foner, Our Own Time
At a little past noon on October 7, 1978, Frank Schiff, Vice President and Chief Economist of the Committee for Economic Development, addressed a conference on Work Time and Employment convened by the U.S. National Commission for Manpower Policy. Assembled at the Capitol Hill Quality Inn in Washington, D.C., the conference attendees were indeed a quality collection of noted academics, high level civil servants, and influential spokespersons for business and labor. Schiff was responding to a paper on "Policies to Reduce Fixed Costs of Employment" that economist Robert Eisner had just presented. Speaking of the goal of adapting to individual preferences for worktime and leisure, Schiff remarked,
To achieve this goal, Professor Eisner places major stress on employment subsidies and tax credits, essentially to offset the effect of public policy and institutional work arrangements that create a bias against flexible work arrangements. This is clearly one possible approach, but it should be emphasized that it is by no means the only way to deal with the problem. Other possible options include direct efforts to reduce the existing institutional biases against flexible work time patterns -- for example, by relating the cost of particular fringes more to hours worked than to the number or employees, or by relevant changes in the computation of experience ratings.
On the face of it, Schiff's comment stands out from the 445 page conference report as such profound good sense that it no doubt was quickly and profoundly forgotten by all and sundry present -- perhaps even by Schiff. In the 18 years since that prestigious Washington, D.C. conference, much has changed. But the institutional bias in favour of overtime has remained. Rarely have economists, shorter work time advocates or policy analysts echoed the call to directly reduce or remove the long hours bias of public policy.[9]
To give a bit more context on the timing of the Work Time and Employment conference, remember that 1978 marked the beginning of a Carter administration public relations crusade against inflation. In this crusade, unemployment came to be seen as a weapon for fighting inflation, rather than a political liability or social curse. The theory of the non-accelerating inflation rate of unemployment (NAIRU) offered both a convenient excuse for tolerating high unemployment and a self-serving explanation of inflation. Worrying about unemployment became unfashionable. Worrying about working too much, became downright foolish.
Let us return for a moment to that October day in 1978 and indulge in a bit of economic fantasy. Suppose that Frank Schiff's comment about removing the institutional biases had seized the imagination of the conferees. Imagine that reporters from the major news media were present at the conference and Schiff's offhand suggestion became the subject of front page feature stories and soul-searching editorials. Imagine that a national debate broke out across North America about the nature of work and the illegitimacy of government regulations that prolonged work beyond the desires of individuals. Imagine the emergence of a mass labor/civil rights movement demanding a real, effective limit on work time and insisting on the repeal of legislation that enforced excessive work.
Imagine the victory of that movement.
Ask yourself: "Would I be better off today if those changes had occurred?"
Now ask: "What will happen over the next 18 years if we fail to seize this moment for removing the institutional biases against shorter work time?"
Policy suggestions
To expand on Frank Schiff's cryptic comment about removing the institutional biases, I've mapped out tentative public policy responses and collective bargaining strategies to address the dilemma of work time distribution. These suggestions are not quite as simple and intuitive seeming as "time and a half for overtime" (or double-time or triple-time). In fact, the problem with any overtime premium is that it's too simple a solution -- a non-solution, really -- to deal with a complex decision situation.
The difficulty of solving the dilemma of work time is that "it" is several different problems from the perspectives of the workers, unions, governments and employers. From the perspective of the worker, the goal is to hold on to an expected level of income and benefits and obtain increases where possible. From the perspective of the union, the goal is to achieve an agreement that the worker will accept as worthwhile -- which is not exactly the same as the worker's goal. From the perspective of the employer, the goal is to minimize unit labour costs and retain as much control as possible over the quantity of labour power purchased during any particular period. From the perspective of the government (assuming the government is acting responsibly -- perhaps a questionable assumption), the goal is to maintain full employment so as to promote the public welfare, maintain social peace and generate healthy tax revenues.
The full solution would require both public policy changes and changes in collective agreements. But the strength of the strategies outlined below is that incremental progress can be made on either front without waiting for the other. There is also an educational component, which is presented after outlining the public policy and collective bargaining approaches.
There is little point to fleshing out the sketchy proposals below until a public discussion can begin about the need for reducing work time and redistributing work. Furthermore the suggested options are self-consciously moderate -- there is little point imagining a maximum program without at least the beginnings of a social movement. In short, the suggestions below are intended more to start the next discussion, not conclude this one. As Andre Gorz wrote at the end of Critique of Economic Reason, "Here then is the reasoning behind my proposals. They are not the only proposals. You could make other ones based on other reasoning . . ."
On the public policy front:
1. Remove ceilings on employer contributions to statutory government programs, such as unemployment insurance, pensions and workers' compensation. In the States, the ceiling on OASDI is already high enough that it isn't a factor, but unemployment insurance has a low ceiling and is a problem. In Canada, unemployment insurance, the Canada pension plan and workers' compensation all have ceilings that give employers an incentive for overtime work, especially for higher paid workers.
2. Re-examine tax exemptions for employer paid fringe benefits. If such exemptions are to be retained, they should stipulate that the benefits must be prorated as a percentage of earnings or accrued on an hourly basis. This would convert them from fixed to variable costs.
3. Amend regulations for statutory holidays and breaks so that they include additional paid time off entitlement for hours worked beyond the stipulated minimum and include pro-rated entitlement for holiday pay for temporary and on-call workers. Vacation time already works this way (at least in British Columbia), there is no reason statutory holidays can't also work this way.
4. Close the time and a half loophole in the legislation limiting the hours of work. Exceptions should be made only for emergency work and to meet bona fide non-economic requirements of an industry. Exceptions to the limit on hours of work should require permits, public hearings and a process that allows for challenges from the public against abuses. Extend the protection of hours of work legislation to salaried workers. People who moan about loving their work so much can still work long hours, they just shouldn't be allowed to do it for an employer and thus violate other people's right to not work long hours.
On the collective bargaining front:
1. Negotiate changes in fringe benefits so that they are prorated as a percentage of earnings or accrued on an hourly basis. This would convert them from fixed to variable costs. (This is a direct complement of policy proposal number two. The needed change thus could be achieved either legislatively or through collective bargaining.)
2. Where appropriate, (this wouldn't necessarily apply to all workplaces) negotiate a targeted -- not a fixed -- shorter work week. What this would mean is giving workers a secure base of hours and a definite cap (not to exceed 40 hours), between which the actual hours could vary from week to week. This proposal acknowledges some aspects of the current situation where 40 hours is the base, there is no cap and hours fluctuate around an average of, say, 43.
3. Re-examine collective agreements and labour costs to identify and reclaim wages that may have been lowered to offset the costs of paying overtime premiums for regularly scheduled overtime.
On the education front:
1. Re-examine the concept of "employer-paid" benefits. Who really pays for such benefits? In some cases, employer paid benefits may be an administrative convenience for workers. In other cases, they may represent a compulsory purchase of insurance that workers may not want or need. If workers imagine that the benefit is a gift from employers, they may be less vigilant in asking whether the coverage is what they want or need.
2. Develop "know your paycheque" workshops and materials to investigate what happens to the illusory "time and a half" overtime premium. For example, after taxes, an hour of overtime for a worker with a good union job will yield about 85 percent of the net pay and benefits for regular time. How does 85 percent compare with 150 percent?
3. Expand the cost/benefit analysis of overtime to include the social costs of unemployment or of the diminished community participation of people who are locked into an addictive/compulsive cycle of overwork and spending on "toys."
4. Open a discussion of the relative importance of solidarity and seniority. For unions, seniority only makes sense as a procedural rule if it is a way of defending the fundamental principle of solidarity. Too often, unions treat seniority as the fundamental principle and solidarity as a slogan justifying that principle.
A clear analysis of overtime makes it impossible to regard overtime as the rightful entitlement of senior workers, insuring them whatever higher incomes they may desire. It is a tax on the unemployed and on lower paid workers, only a portion of which is even retained by the worker who puts in the extra hours. If a worker wants to do cut-rate work after hours, the union shouldn't defend such block-headedness. Union members should honour the legal limit on hours of work in the same way they honour a picket line: "You don't cross."
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