Wednesday 14 July 2021

Iceland and the four-day workweek

Iceland has been in the news over the last couple of weeks for the success of a trial of a four-day workweek (see here and here, for example). As the BBC reported:

Trials of a four-day week in Iceland were an "overwhelming success" and led to many workers moving to shorter hours, researchers have said.

The trials, in which workers were paid the same amount for shorter hours, took place between 2015 and 2019.

Productivity remained the same or improved in the majority of workplaces, researchers said.

I took these reports at face value, while noting that my concerns about the Perpetual Guardian trial in New Zealand, especially in relation to the Hawthorne effect, remain valid. However, it appears that there has been some misreporting of what was actually trialled in Iceland. Anthony Veal (University of Technology Sydney) wrote in The Conversation today:

It almost seems too good to be true: a major trial in Iceland shows that cutting the standard five-day week to four days for the same pay needn’t cost employers a cent (or, to be accurate, a krona).

Unfortunately it is too good to be true.

While even highly reputable media outlets such as the BBC have reported on the “overwhelming success” of large-scale trials of a four-day week in Iceland from 2015 to 2019, that’s not actually the case.

The truth is less spectacular — interesting and important enough in its own right, but not quite living up to the media spin, including that these trials have led to the widespread adoption of a four-day work week in Iceland...

The media reports are based on a report co-published by Iceland’s Alda (Association for Democracy and Sustainability) and Britain’s Autonomy think tank about two trials involving Reykjavík City Council and the Icelandic government. The trials covered 66 workplaces and about 2,500 workers.

They did not involve a four-day work week. This is indicated by the report’s title – Going Public: Iceland’s journey to a shorter working week...

Read on to the third paragraph and you’ll learn the study “involved two large-scale trials of shorter working hours — in which workers moved from a 40-hour to a 35- or 36-hour week, without reduced pay”.

A four-day week trial would have involved reducing the working week by seven to eight hours. Instead the maximum reduction in these trials was just four hours. In 61 of the 66 workplaces it was one to three hours.

Extrapolating from the effect of a reduction of 1-3 hours (for the majority of employers in the trial) to a reduction of 8 hours may be a bit of a stretch. Veal also notes the potential for the Hawthorne effect - workers know that they are involved in a trial, and that researchers (and their employers) are watching them closely. It is only natural that they would work a little harder, and this would manifest in higher productivity.

It may be too early for this (from the BBC article):

The trials led unions to renegotiate working patterns, and now 86% of Iceland's workforce have either moved to shorter hours for the same pay, or will gain the right to, the researchers said.

At least though, we can watch with interest how a larger scale shift to shorter working hours affects productivity in Iceland. However, to understand that question we would need to agree on what we mean by productivity.

In general, labour productivity is the economic output per unit of labour input. In this case, it really matters how you measure labour input. If you measure it in terms of hours of labour, reducing the workweek for all workers might increase productivity, while at the same time reducing the total output of the economy. That arises simply because of diminishing marginal returns to labour. Each worker is progressively less productive each hour that they work than they were the hour before (maybe tiredness or boredom are factors here). So, removing the least productive hours from the workweek will raise average productivity, but would still mean that less work gets done in total.

However, if you measure labour input in terms of the number of workers (or equivalent full-time workers, even adjusting for the change in definition of 'full-time'), then labour productivity will decrease. Unless you genuinely believe that there is negative marginal product from the hours that are being cut, in which case the employers are irrational and should have cut hours long ago, without any need for government intervention (why would an employer pay a worker for hours that decrease their total output?).

There are other salient issues that I don't think have been adequately canvassed on this topic. For instance, in jobs where there are significant tournament effects, there might be no decrease in productivity measured per worker. That's because when there are tournament effects, people are paid a 'prize' for their relative performance (that is, for winning the 'tournament'). The prize may take the form of a bonus, a raise, or a promotion. The point is that each worker only needs to be a little bit better than the second best worker in order to 'win' the tournament. Those incentives would work to undo the decrease in work hours, since if everyone else reduces their work hours from 40 to 32, a worker that keeps working 40 hours will increase their chances of winning the tournament. If you doubt that tournament effects are real, I recommend asking any serious academic how many hours they work each week (since tournament effects are rampant in academia). This is not consistent with the overall goal of the four-day workweek, which is to reduce work. All it would do in these occupations is shift more of the work to outside of the paid workweek.

Also, the four-day workweek may be great for employees, but how will it affect self-employed workers? Or 'contractors', who are nominally self-employed but have little control over their work conditions. Or workers in the gig economy? Or interactive service workers (e.g. baristas), where the potential productivity gains (measured per hour worked) are likely to be close to zero? Will governments need to adjust the minimum wage (which is expressed in hourly terms, not weekly terms)? Does this reduce holiday entitlements (which are generally expressed as a number of weeks, but each week is now four days, not five)? That isn't to say that any of these issues is fatal for a four-day workweek proposal, only that they are things that any government will need to think about before such a proposal goes ahead.

Read more:


No comments:

Post a Comment