In my previous message I explained what I mean by the "undertime tax". In
this second message, I will explore the effects that removing the undertime
tax could have on unemployment in Canada.
In an article titled "Working Less and Enjoying it More" (Family Security in
Insecure Times, Canadian Council on Social Development, 1996), Frank Reid
discusses the job creation potential of voluntary work time reductions. His
estimates are based on a survey of employee attitudes toward work reductions
conducted by Statistics Canada in 1985. How closely those 12 year old
attitudes reflect current realities is a moot point, since what Reid is
highlighting is a possible direction, not a precise calculation.
Leaping past all the calculations and qualifications, Reid suggests that
voluntary work time reduction alone could reduce unemployment in Canada by
3-4%. This figure refers to voluntary reductions of REGULAR work times. A
further reduction in unemployment could be accomplished by reducing the
amount of regularly scheduled overtime, that is by reducing overtime that is
not a response to production disequilibria or to emergencies. The Advisory
Group on Working Time and the Distribution of Work estimated in 1994 that if
one-half of the _paid_ overtime were converted to new jobs, it could mean an
additional 80,000 full time jobs, (or a reduction in unemployment of about
half a percent). Adding the two figures gives an estimate of a three and a
half to four and a half percent reduction in unemployment.
The estimate of three and a half to four and a half percent included quite a
few conservative adjustments and it doesn't include any estimate of
multipliers based on the increased employment. Some might argue that
multipliers would be inappropriate because we are talking about the
redistribution of existing work rather than new economic activity.
Let's not quibble about the fine points -- using only the base estimates,
we're looking at potential full-time job creation of 560,000 to 720,000
people in Canada. Finance Minister Paul Martin boasts about an employment
increase of 671,000 jobs (not all of which are full time) since the end of 1993.
Being an Aristotlean, I am well aware of the difference between necessary
and sufficient conditions. I won't claim that removing the undertime tax
(and in the process restoring the effectiveness of overtime premiums) is
sufficient to realize the full potential of the 560,000 to 720,000 estimated
full-time jobs that could be converted from overtime and voluntary work time
reductions. But it IS a necessary condition. Those 560,000 to 720,000 jobs
are dead in the water as long as the government insists on nurturing the
long hours bias of public policy.
It would seem that the government would need a very compelling reason to
turn away from the job creation potential outlined above. On the contrary,
correspondence I have from senior government officials suggests an eagerness
to clutch at pretext, no matter how feeble, to avoid considering the above
analysis. As an example, I have correspondence from an assistant deputy
minister making the outrageous statement that the structure of employment
insurance contributions could not act as an incentive to employers to use
overtime "until late in the year, after the employee had exceeded the
$39,000 annual maximum insurable earnings".
As the instructor of an introductory course in project management, I have
news for the assistant deputy minister: business people are routinely
advised to ANTICIPATE costs and plan for ways to avoid them. In the case
where a permanent, full-time employee earns over $18.75 an hour, ANY
additional earnings will raise the employee's total annual income above the
$39,000 ceiling and thus can be viewed either as being exempt from
employment insurance contributions or as advancing the date after which
subsequent income will be exempt. From the employer's perspective, the only
difference would be uncertainty about unexpected terminations (quits,
deathes, layoffs). But since the employer is concerned a calculation of the
total payroll -- not each individual employee -- even such uncertainties can
be accounted for with relative ease.
To review my argument:
There is a substantial public policy bias against reducing work time and
that bias can be shown by the calculation of the undertime tax, which is
often larger than its opposite, the overtime premium.
Removal of the policy bias against reducing work time _could_ result in the
creation of an estimated 560,000 to 720,000 full-time jobs. But at any rate,
failure to remove the policy bias ensures that those jobs won't be created.
Government officials seem willing to clutch the feeblest pretext to avoid
even considering the job creation potential of a serious policy to enable
the voluntary reduction of work time (or, the job killing record of current
policy).
Regards,
Tom Walker
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