I am writing a research funding proposal (due Dec. 16) and would welcome any
suggestions on the analysis presented below. I'm particularly interested in
hearing of any work that has been or is being done along similar lines.
According to my rough calculations, using the B.C. pulp and paper industry
as a case in point, the "ninth hour" of a hypothetical "annual working day"
costs employers about 7.6% less than the "first hour", in spite of the legal
requirement for overtime pay at time and a half. At an industry standard
hourly rate of $23.50, the total cost to employers (including payroll taxes,
benefit premiums and allowance for paid time off) is $36.60 for the ninth
hour compared with $39.40 for the first hour. This is because most of the
non-wage labour costs are loaded on the standard eight hour day and some are
loaded on the first six or so hours of the day.
The obvious implication of such a relationship is that employers will favour
overtime over creating new employment because it is cheaper -- even at time
and a half. In the late 1970s or early 1980s, U.S. Rep. John Conyers had a
proposal to increase the overtime premium to double time as a way of
offsetting the effects of non-wage labour costs. The argument against such a
proposal was that it would actually lower total employment because the
higher labour costs will result in loss of demand and the substitution of
capital for labour.
Similarly, proposals for shortening the workweek run into a cost wall. And
this is not simply a question of "shorter hours at no loss in pay". When I
recalculate the employer costs assuming a 32 hour week instead of a 40 hour
week and assuming the same structure and level of benefits and payroll
taxes, and keeping the hourly base rate constant, the cost of the first hour
jumps to $42.25, while the cost of the first overtime hour (the "seventh
hour" of a hypothetical annual working day) remains at about $36.70. In
other words, the employer cost of the first overtime hour would become 15%
less than the cost for the first reuglar hour (again because of loading of
fixed and quasi-fixed non-wage labour costs on the regular hours). The
perverse result of a legislated reduction in the standard workweek thus
could be that average weekly hours worked would remain about the same and
the average amount of overtime would increase by around 8 hours a week --
although scale and substitution effects should again lead to a _total_
reduction in hours worked, thus increasing, rather than decreasing,
unemployment.
The relationship between overtime costs and straight time costs is
counter-intuitive and clearly contradicts the intent of employment standards
legislation. The solution to the problem is, in theory, extremely simple:
distribute non-wage labour cost proportionately over the working day. In
practice, however, this would require that many well-established assumptions
of social security finance, employment standards regulation and collective
bargaining strategy would have to be reviewed for their effects on working
hours, total employment and employment equity.
It would be reckless to underestimate the intensity of political resistance
to pro-rating non-wage labour costs over the entire working day, including
all overtime hours. I suspect that many people would refuse to even look at
the calculation that clearly shows that "one and one half" is less than
"one". But I think this approach solves the dilemma of why the momentum for
the reduction of the working time has been stalled since the end of world
war two and, for many people, *reversed* in recent decades.
Regards,
Tom Walker
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