Fri Aug 15

Australia used to lead the world on shorter work hours – we could do it again

Written by John Buchanan, Professor in Working Life, Discipline of Business Information Systems, University of Sydney Business School, University of Sydney

In the 1850s, when Melbourne stonemasons won the eight-hour day, employers of the day prophesied economic ruin ^[1]. These standardised hours then flowed into other industries.

Far from ruin, Australians went on to enjoy one of the highest living standards on the globe by the later 19th century ^[2], even after the deep depression of the 1890s.

Again, in the late 1940s and early 1950s, with the achievement of the 40-hour week ^[3] employers predicted economic decline. Instead, in the 1950s and 1960s Australia enjoyed a rate of economic and productivity growth that is yet to be matched ^[4].

Fast forward to this week, and the Australian Council of Trade Unions (ACTU) has reignited this age-old debate. It has proposed that shorter working hours – such as a four-day week – must be central to next week’s productivity roundtable in Canberra.

Unsurprisingly, business groups ^[5] and some economists ^[6] have condemned this initiative.

But at the core of this proposal for shorter hours is a simple truth: improved productivity performance cannot be separated from how increased prosperity is shared.

What are the unions proposing?

The ACTU’s proposal ^[7] can be simply laid out.

First, it argues that since the 1980s, business has accrued a disproportionate amount of the gains of productivity ^[8]. This has resulted in a declining share of national income ^[9] going to workers.

Second, productivity gains, arising from both technological advancement and better ways of deploying and combining labour and capital, should be shared in the form of shorter hours, not just higher profits or pay.

And third, the way these hours are shortened should be sector-specific. In some industries, the four-day work week may be appropriate. In others, different models could include offering employees more rostered days off or additional annual leave.

Much media commentary ^[10] has focused on the proposal for a four-day work week. This approach to working time reform is relatively new. Concern with the relationship between working hours and productivity, however, has deep roots in the history of capitalist societies in general and unions in particular.

Where have these proposals come from?

When people think of productivity, they commonly assume technological advances are crucial. For example, as water wheels and fossil fuels replaced human energy, more textiles and clothing could be produced with less human effort ^[12] in the late 18th and early 19th century.

Over the past two centuries, it is important to recognise that around the world, productivity advances – and especially the fairer distribution of the gains made – have not just been an artefact of technological advancement. Social factors, especially union campaigns and government taxes and regulations, have also played a crucial role ^[13].

Professor Robert J. Gordon produced one of the most definitive studies of these dynamics. His seminal work, The Rise and Fall of American Growth ^[14], examined how living standards in the United States changed since the Civil War in the 1860s.

One of his key findings was union and government initiatives were critical to the golden era of productivity growth in the 20th century.

Some of the most significant initiatives emerged as part of US President Franklin D. Roosevelt’s “New Deal” economic program of the 1930s. This helped recovery from the depression by expanding extensive public works to create jobs and upgraded income support for vulnerable citizens, especially the unemployed.

Key New Deal laws also promoted unionisation, which Gordon argues:

directly and indirectly contributed to a sharp rise in real wages and a shrinkage in average weekly hours. In turn both higher real wages and shorter hours helped boost productivity growth […]

It has long been recognised that well-designed union and government policies provide what is referred to as a “productivity whip ^[15]”. That’s because they cut off the simple route to boosting profits based on cutting wages and working conditions.

It is no coincidence that those countries with strong unions or social democratic governments ^[16] – such as Germany, the Nordic countries and France – enjoy the shortest paid working hours in the world, while maintaining healthy economies with high material living standards.

Could the ACTU’s proposal work?

The ACTU cites two recent ^[17] studies ^[18] of the impact of the four-day work week experiments in a limited number of organisations. The results of these studies are positive for reported productivity and work-life balance – but they are openly recognised as small scale.

What is more important is the long history noted above and the most considered analyses of the challenges facing us today.

Here, Gordon ^[19] is again very helpful.

He argues the stagnation of US productivity growth of recent times is most likely not an aberration. As he notes, the impact of things – such as improving public health by removing horse manure from streets and introducing mass clean water and sewerage systems – have profound impacts that cannot be easily replicated for impact in future generations.

He also notes there are a number of major “headwinds” that make further productivity advances in countries such as the US and Australia on the scale of recent modern history difficult. Prime among these is deepening inequality. This is a problem in Australia ^[20] as well as the US.

Clearly, issues of distribution of productivity gains must be central to any future policy mix directed at improving productivity. Shorter working hours can play an important role in that mix. For one, sharing productivity gains as shorter hours protects them from being eroded by inflation.

For Australia, it’s important to remember the challenge isn’t just to “boost productivity”. We also have to think about how we do so in ways that ensure we live lives involving more than just work and consumption.