Shorter hours might send us broke

It is Wednesday and just a short blog post today (short is relative I know). There was a proposal published recently (April 2019) by the British-based Autonomy Research Ltd – The Ecological Limits of Work. Autonomy pushed basic income and shorter working weeks with a healthy the ‘robots are coming’ agenda to boot. In its most recent ‘report’, Autonomy is claiming we have to dramatically cut working hours – like dramatically – but seems oblivious to the link between nominal and real. I think we will make more progress if we construct Green New Deal solutions within the current institutional realities. And, I just got my flame suit out of the cupboard where it sits on constant standby!

A couple of weeks ago, I wrote a blog post – The Job Guarantee misinformation campaign – UBI style (May 15, 2019) – which mentioned an article in the UK Guardian (May 12, 2019) – The zeitgeist has shifted. Now the left is fizzing with ideas for a smarter economy – written by Will Hutton.

One of his fizzes was the Autonomy Report on the ‘Ecological Limits’.

In an earlier Autonomy Report – The Shorter Working Week: A Radical And Pragmatic Proposal – we read that:

A further implication of this is that in many cases there would be no justification for cutting wages in tandem with reduced working hours (as productivity can often be maintained or even increased).

In its most recent Report on the ‘Ecological Limits of Work’ we are told that there will have to be a dramatic cut back in working hours – for example, they estimate that UK will have to work just 9 hours a week to avoid a climate catastrophe.

Let’s accept the base proposition that the IPCC laid out for us in their 2018 Report – Summary for Policymakers of IPCC Special Report on Global Warming of 1.5°C approved by governments:

Pathways limiting global warming to 1.5°C with no or limited overshoot would require rapid and far-reaching transitions in energy, land, urban and infrastructure (including transport and buildings), and industrial systems (high confidence). These systems transitions are unprecedented in terms of scale, but not necessarily in terms of speed, and imply deep emissions reductions in all sectors, a wide portfolio of mitigation options and a significant upscaling of investments in those options (medium confidence).

So a comprehensive challenge that will impact on all our lives in many ways.

They base their predictions on OECD and UN data which “links GHG emissions to units of GDP” and then, through relationships between GDP and working hours, they get a relation between hours and GHG emissions.

So the proposition then to dramatically cut back hours of work becomes a straightforward proportional extrapolation exercise that exploits these arithmetic relationships.

The assumption that there is a particular level of GDP per capita (under current technology) that is “sustainable” in terms of GHG emissions which then dictates how many hours the current workforce should work to keep the economy operating within that sustainable threshold.

The conclusion they draw is that:

Actual working hours levels vastly exceed the levels that might be considered sustainable.

Okay, so what does that mean in actual hours of work per person per week?

Another calculation (you can familiarise yourself with it if interested by reading the Report) then comes up with a “sustainable full-time week” (another linear extrapolation).

They produce this graphic to summarise their findings:

So the purple bars are the current full-time working hours and the green bars are their estimate of what they consider to be sustainable.

The variations are due to the “carbon efficiency” already achieved by some countries (for example, Sweden) relative to others.

The overall conclusions are:

1. “the climate crisis calls for an unprecedented decrease in the economic activity that causes GHG emissions, and this confronts us with, to adapt Paul Lafargue’s phrase, the ‘necessity to be lazy’.”

2. We would be substituting material prosperity for “time prosperity”.

3. But even that dramatic cut in working hours “will likely be insufficient to combat climate change”.

4. So there has to be a “radical economic transformation, for instance to shift jobs from sectors such as manufacturing and fossil fuel extraction towards employment in service professions and green jobs”.

5. The reduction in working hours across the board “would therefore not allow the use of working time reductions to offer jobs
to the unemployed or to increase the working hours of the underemployed (which would require a more equal sharing out of current working hours).”

6. So labour underutilisation rates remain unless their is redistribution of work.

7. Further, there would have to be reductions in productivity – “to reverse the intensification of work that is having significant negative impact on individual wellbeing and mental health” – which means that a much shorter working week will produce much less in the 8 hours than it would today in 8 hours.

8. “Clearly, such a transformation of work cannot be brought about overnight.”

Now, please do not get me wrong – the motivation is sound. Cutting back material goals in favour of non-material goals that are less carbon-intensive (by a long way).

We support that clearly.

We also support shifting production from carbon-intensive jobs to green jobs.

We also support building leisure activities that: (a) can be enjoyed without income; and (b) are green themselves (a walk along the beach rather than a trip to a V8 motor car event!).

But the Autonomy Report is completely silent on the question of wages, incomes and nominal commitments.

In the earlier Report on Shorter Working Week that I cited above, they do argue that wages might not have to drop proportionately with hours because productivity will rise in some (but not all sectors).

So wage inequality (dispersion across the distribution) would increase as some workers faced larger pay cuts than others.

However, it is clear that all workers would face wage cuts.

Further, while they offered some offset to workers in their earlier analysis, in the most recent Report they are also advocating a lower productivity future (to help workers gain better health).

So there is an inconsistency there.

Let’s do some hypothetical calculations based on the assumption that Australian workers were put on a 8 hour week. Australia is one of the worst offenders in terms of carbon-usage.

Currently the average working week is 35.6 hours for Australian workers.

In the December-quarter 2018, 12,693 thousand workers were employed and produced a real GDP flow of $A461,547 million, which then generated commensurate incomes to be distributed between the claimants including capital, workers and government.

If those workers were working 8 hours per week, under current productivity estimates, they would produce a real quarterly GDP flow of $A103,602 million and commensurate national income flows.

So a scaled down GDP by some 77.5 per cent.

Who exactly would take that loss?

Currently wages account for around 52 per cent of total GDP (at factor cost).

Which then raises the question as to how the society would transition in terms of nominal values.

In the December-quarter 2018, Total gross national income (nominal) was $A464,788 which was distributed accordingly:

1. Australian employees received a total of $A225,975 million in compensation.

2. Gross operating surplus (profits) = $A168,107 million.

3. Gross mixed income = $A39,114 million.

4. Taxes less subsidies on production and imports = $A46,911.

5. Net primary income for non-residents = $A-15,319 million

If the lower national income was distributed according to current proportions then (rounding and approximating):

1. Workers would receive around $A51,000 million in December-quarter 2018 dollars.

2. GOS would receive $A38,000 million.

and so on.

While we can think in real terms (so much output, so much employment, so much carbon emissions), we should also note that we have nominal commitments.’

Mortgages, for example, the single largest nominal commitment households face in their lifetimes,

The average mortgage repayment in Australia (8 capital cities) was $A2,586 per month (as at March 2017), although the variations across the state capitals is significant. In Sydney, for example, the monthly average repayment was $A3,031 (as at March 2017).

These commitments are in nominal terms and have to be repaid in those units irrespective of the incomes received by mortgage holders or movements in the price level which change the real value of those nominal commitments.

You can see the problem.

A worker who moved from a full-time working week now to an 8 hour working week, would probably receive a nominal income that was less than their current mortgage commitment (or close to less).

Sure enough, the government could insulate the nominal loss of income through fiscal transfers. Financially that would always be possible.

But in this case, with such a drop in real output, while real incomes would scale down proportionately with the output decline, any attempt at maintaining existing nominal incomes to match nominal debt servicing obligations would be highly inflationary.

So the point is that there is a fundamental disconnect between proposals to dramatically reduce the working week and the structure of credit commitments.

Further, the profit rate on existing capital would plummet. How would firms respond?

And the unemployed and underemployed are still dudded.

Conclusion

The point is that we can dream up all sorts of fizzy plans but they have to be at least somewhat congruent with institutional reality.

Yes, we have to reduce the carbon footprint or whatever it is called.

Yes, that means less carbon-intensive production.

But dramatic cuts in the working week are not the solution at this stage given the nominal realities that will not just disappear.

Wednesday Music segment – we are chilling!

I decided to set the scene this morning with this album – Solid Air – from British guitarist-singer John Martyn. It was released in February 1973.

Here is a great track – Don’t Want to Know. Good message. And great backing vocals. And great little riff in Am.

Fairport Convention’s Danny Thompson played bass and its drummer Dave Mattacks played drums (as you might expect).

John Martyn was a very experimental artist but got lost in alcohol and died quite young. Sadly.

Keeps the mood down so I can stay in my seat typing.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.