Wednesday, July 07, 2004

Globalization Watch: Workweek lengthened in Europe

According to the NYT Europeans are moving toward lengthening the workweek. This has been in the response to the potential of moving jobs to Eastern Europe where labor costs are lower.

Europe's long siesta, it seems, has finally reached its limit — a victim of chronic economic stagnation, deteriorating public finances and competition from low-wage countries in the enlarged European Union and in Asia. Most important, many Europeans now believe that shorter hours, once seen as a way of spreading work among more people, have done little to ease unemployment.

"We have created a leisure society, while the Americans have created a work society," said Klaus F. Zimmermann, the president of the German Institute for Economic Research in Berlin. "But our model does not work anymore. We are in the process of rethinking it."

From the 1970's until recently, Europe followed a philosophy of less is more when it came to labor, with the result that Europeans work an average of 10 percent fewer hours a year than Americans. Germans, with the lightest schedule, work about 18 percent fewer hours.

The job creation argument went hand in hand with the greater social premium that Europeans place on leisure. In the land of the four o'clock rush hour and the monthlong summer holiday, it does really seem, as the cliché goes, that Europeans work to live, while Americans live to work.

Two things of note. The first is that I don't approve of the European model. As it has pointed out, lower workweek requirements haven't induced greater job creation or lower unemployment. Part of this is threshold costs. The cost per employee isn't significantly or even proportionally reduced by splitting the labor up. Think of it this way, you still have to pay vacation, medical, retirement, etc. per employee. If you take three employees and reduce their workweek from forty (40) hours per week to thirty (30) hours per week, you do not get enough savings to create another thirty (30) hour a week position. Indeed the benefits cost of the employee, training, etc. is a sufficiently large enough part of compensation that likely that you would have to reduce many employees by ten hours a week to create a single new position. If you reduce the amount per employee by five hours a week instead of ten, the efficiencies become even worse.

So clearly the European model was flawed. That having been said the oldman has been looking closely at Europe for a while. This has been because of the productivity issue. Clearly if it was technology implementation alone, as proponents claim, that was the result of the productivity "miracle" (or rather the approach of American productivity to long term averages as Spencer pointed out) then we should see a similar bump in European productivity. So far I haven't seen it.

What I have seen however is a push toward greater productivity based on informally extending the workweek (such as by reducing vacation, taking work home, etc.) or reducing compensation (such as healthcare benefits) urged on by structural labor cost differentials. This seems to put the lie to the proponents of productivity and globalization here who claim that the main driving force is technology, and not squeezing labor costs. Of course they are well rewarded for their lies, so it's hardly surprising isn't it?

Europe is moving toward greater productivity, but it is not technology that is driving it but labor costs. I find it hard to imagine it is dynamically different here in America whatever the differences in specific boundary conditions.

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