Digression: Work and Jobs

The Mitterand socialist government in France during the 1980’s hoped to create tens of thousands of jobs by cutting working hours. The basic working week was to carry the same pay, therefore each hour worked was to carry more pay. The work not done as a result of the reduction in hours per worker was supposed to require the engagement of extra hands to get it done.

The mistaken assumption behind this policy was that the amount of work available in an economy at any time is fixed like the amount of fresh water available. So, to take up the unemployed it was necessary only (i) to reduce the amount of work for each worker, to share it around, rather as reducing the amount of water consumed by each person would make water available to those with none; or (ii) to start new projects, to create a greater amount of work, analogous to increasing the water supply to make water available to those with none, without reducing the water consumption of people currently being supplied.

Related to this assumption is the false one that social ideals can be pursued by raising wages without affecting the number of jobs available.

Certainly the amount of wealth throughputting activity in the economy is one determinant of the number of jobs that the economy can support. But another important determinant is the size of wages paid; not only in the aggregate but in the levels paid to particular occupations.

This determinant operates both directly through its effect on the profitability of hiring workers, and indirectly through its effect on the level of economic activity or the incentive to mechanise and automate the structuring of goods and services.

So the number of jobs possible in an economy at any time is not fixed like the water supply. There can be enough jobs for every worker, or for only a fraction of the willing and able work force, depending on three main sets of variables: the throughput rate, the proportion of the money supply flowing through the wages channel, and the relationship of the wage paid for a particular line of work to the market price of the goods and services made available through the practice of that line of work.

The practical result of the Mitterand government’s policy of trying to create more jobs by cutting working hours was that jobs were actually eliminated. The work that could have been done at a lower wage continued undone, and some work being done at existing wages disappeared or became more mechanised as hourly labour costs rose.

This was another example of a policy producing an effect opposite to that intended, due to errors in the assumptions on which the policy was based.

Finally, it might be noted that instead of having to start new projects to create jobs, it is really a case of creating jobs (by cutting wage costs) to enable new projects to be started. People start new economic activities not primarily to employ people, but to make money.

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