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.
Posts in this Series
- Review of 1988 edition of Economics for a Round Earth
- Ends and Means
- Evolution Not Revolution
- Notes on Evolution Not Revolution
- Concepts and Terms – What is ‘wealth’?
- The Throughput Chain
- The Derivatives of Wealth
- Global Inequalities in Wealth
- Economic Growth Redefined
- Misconceptions in Practice
- Borrowing to Invest to Get Rich
- Environment versus Economic Progress
- Digression: Pollution Red Herrings
- Digression: Depletion and Inflation
- Value Inflation – the Trigger, not the Bullet
- Living Standard and Quality of Life
- Digression: Resource Consumption, Jobs, and Hands Off
- When the Boom comes
- The Effect of People’s Expectations
- Hard Work – Virtue or Vice?
- Who needs the Snail Darter?
- More Dollars for Conservation?
- Non-renewable Resources – Leave Them in the Ground?
- Digression: Fast Breeder Nuclear Fission Reactors
- Minerals in National Parks – Leave Them in the Ground?
- Population and Wealth
- Left, Right and The Environment
- Digression: “So Long As We Profit, Costs Elsewhere Aren’t Our Problem”?
- Limits to Growth?
- Solar Energy – a Special Case
- The Solar-Powered Car
- Money Supply, Throughput and Inflation
- Real and Money Wages: Living Standards
- Digression: Caution about “Increases” and “Decreases”
- The Idea of Proportionate Flows Applied to Wages: the Great Depression
- Deficit Financing
- The Optimum Proportionate Flow Condition
- Digression: Thrift versus Spendthrift
- Digression: the Private Motor Car – a Basic Necessity?
- The Idea of Proportionate Flows Applied to Wages – the Stagflation of the 1970’s and 80’s
- Excessive Wages Can Cost Jobs
- Fight Unemployment or Inflation First?
- Digression: Work and Jobs
- Other “Job Creation” Schemes
- Visual and Noise Pollution
- Digression: Renewal and Recycling of Resources; Wages and Jobs
- Ratio Distortion and Consumption
- Aggregate Demand – Components and Internal Ratio
- The Slave Economy
- Employment and the Steady State
- Consumer-Led Recovery
- Interest Rates and Ratio Distortion
- Demographic Trends and Living Standards
- Digression: Bad Economics Good for Conservation?
- Coping with Aging Populations
- Stabilising the Human Population
- Costs – What Really Costs Us and What Doesn’t?
- Digression: Other Comments on Statements in UN Report
- Discussion of Costs Resumed
- Budget Balancing Methods – Cost or Gain?
- Digression: Government Expenditure – Government Employees
- Expenditure on Weapons