Monday, 5 June 2023

The latest Australian research on the four-day workweek

John Hopkins (Swinburne University of Technology) outlined the results of research on the four-day workweek in Australia in The Conversation today:

Four of the ten organisations in our research have adopted the change permanently after trials. The other six have extended their trials, though are still to formally make the move permanent...

In each case, the initiatives were management-led, as a strategy to tackle employee burnout, increase productivity, and keep and attract talent in a tight labour market...

Three of the ten managers reported no loss of productivity despite a 20% reduction in hours – so effectively staff were about 20% more productive.

The other seven reported productivity being even higher than before.

Six said improvements in recruitment and retention had been the biggest success of the initiative so far. Five underlined important reductions in absenteeism.

Three companies needed to maintain their previous hours of availability for customers and clients, despite their staff now working 20% less time. This illustrates it is possible for “client-facing” organisations to implement four-day work weeks.

Hopkins' research is available here. None of the results so far strike me as surprising. The positive effects that they observe are similar to the effects of efficiency wages. An efficiency wage is a wage that is voluntarily offered by an employer and is above the equilibrium wage in the labour market. Employers offer these efficiency wages because they know they have positive effects - they attract and retain higher quality employees who work harder for the firm, higher productivity, lower absenteeism, and lower staff turnover. Why do all these positive effects happen? In the simplest sense, having lots of job applicants and being the first-choice employer for most available workers means you get to choose the best (most productive) workers. Nobel Prize winner George Akerlof also noted that workers will volunteer greater effort in exchange for being better paid (perhaps because of good feelings towards their employer), as a form of 'gift exchange'.

Notice that offering better working conditions, like a four-day workweek, is similar to offering higher wages (in fact, when worked out on a pay-per-hour-worked basis, it is exactly the same as offering higher wages). A gain in productivity that offsets (or more than offsets) a reduction in weekly work hours should not be surprising.

However, as I pointed out in this post about the living wage, these efficiency wage effects only accrue to employers when a few employers offer the efficiency wage. The gains from paying an efficiency wage arise in part because the alternative jobs for employees pay much less. If every other employer also offers an efficiency wage in the form of a four-day workweek, then the employees don't need to work so hard because if they lose their job they can go somewhere else that is also offering the same conditions. Same goes for absenteeism, staff turnover, etc. The benefits of the efficiency wage may evaporate if lots of employers pay efficiency wages.

That's not the only problem with the four-day workweek, of course. As I've noted before, it doesn't work in occupations where there are tournament effects, and Hopkins points out that:

And while the “client-facing” companies we surveyed managed to maintain their operations, it remains to be seen if that’s the case for all workplaces, such as shops, hospitals and nursing homes where any reduction in hours worked by current employees would probably need to be covered by additional staff.

Don't expect your favourite local barista to be on a four-day workweek any time soon. Or if they are, there will be one day each week where you will have to forego your coffee.

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