Ed Weick wrote, >I was referring to Canada, which does have a substantial social safety net, >though the guage is getting larger so that more people can fall through. >And as far as the progressiveness of taxes goes, I owed a lot for the last >tax year, so the marginal rate seemed very high to me. Thank God it wasn't 80%! > Speaking of marginal tax rates, here is: A Proposal for Arbitraging Free Time Introduction When a commodity sells for unequal prices in different markets, an opportunity arises to profit from arbitrage -- buying and selling the commodity simultaneously in the different markets. The commodity in question is free time. This proposal would arbitrage the market for free time by rewarding years of service with more free time rather than with higher annual income. There is a consensus among business analysts and labour economists that a shorter work week costs more money. That consensus is wrong. It is based on a 30 year old analysis of even older data. Times have changed. In some cases even today, a shorter work week may still cost more money. In many others, it could save the employer money, create jobs and provide an important benefit to all employees. The changes in labour costs that have occurred over the last quarter century are consistent with what the economic model of supply and demand would predict. But employers haven't responded to the price signals. If they had, there would now be full employment without inflation (and without fudging the numbers). Labour Costs at the Millennium In the 1970s and 1980s, rampant inflation brought a new urgency to business concern with labour costs. Greater attention was paid to the structure of those costs. Labour economists singled out the growing importance of fixed, per-worker expenses -- known as quasi-fixed costs -- in the total make up of labour costs. Such quasi-fixed costs were found to create incentives for the use of overtime and to impede the introduction of work sharing. Since then, however, decades of tight-fisted employment strategies have changed the terrain of labour costs. A clue to the contemporary mystery of labour costs and hours of work can be found in many collective agreements as well as in the personnel policies of non-unionized employers. That clue is the schedule of wage rates. The typical rate schedule provides for service increments within a job classification and pay grades between classifications. The unquestioned assumption is that as an employee moves up the wage rate schedule, the annual paid hours remain constant and his or her annual income increases in proportion to the increasing wage rate. An equally logical (but unheard of!) alternative would be to keep annual incomes steady while reducing hours of work in direct proportion to the wage increments. That is to say, more free time would be the reward for skill and years of service. That is not to say that all people, or even most, would prefer having more free time to having more income. It is only to point out that nowhere in the standard collective agreement is it acknowledged that they even might. Nor does the standard collective agreement offer any comparison of the relative benefits of such a trade off between free time and income. For an employee facing a marginal tax rate of, say, 33 per cent, one extra day off would be worth one and a half days' income. Paying for the Overhead Cost of Labour The wage rate schedule doesn't entirely explain why the structure of labour costs has changed the way it has over the past 30 years. Such an explanation was given in the 1920s by the American economist, John Maurice Clark. Clark argued that when employers try to shift the costs of cyclical fluctuations in demand to their work force those costs ultimately return in another form. To illustrate the fallacy of treating labor as a variable cost, Clark asked, "If all industry were integrated and owned by workers, what would be the relation of constant to variable expense?" His answer was that, "it would be clear to worker-owners that the real cost of labor could not be materially reduced by unemployment." At first blush, Clark's hypothetical worker-owned, integrated industry may seem remote indeed from today's actual economy. Accounting at the level of the firm for the social costs of unemployment would seem to pose insurmountable technical problems -- not to mention protests from investors. As luck would have it, though, there is already in place a rough and ready surrogate for social cost accounting -- the progressive income tax. The difference between an firm's gross-of-tax payroll costs and its workers' net-of-tax compensation provides a convenient index of the extent to which the firm has tried (but ultimately failed) to shift its overhead cost for labour to the worker. In many firms, while employers kept a gimlet eye on fixed labour costs and tried to cut costs by trimming the work force, the average seniority and pay classification of remaining permanent workers crept steadily upward. As long-term employees rose on the pay scale, their incomes pressed inexorably onward into higher tax brackets. How to Profit from High Taxes and Labour Market Polarization The strategy for arbitraging labour market polarization and high taxation is simple. The secret is to move in the direction of equalizing annual incomes and to reward skill and seniority with more free time. Not every employee would want to make such a radical trade of income for free time. But there's no need to impose it or to offer new incentives. Marginal income tax rates already create a substantial premium on free time for high income earners. Many would jump at the opportunity, if given the option and the information. The changeover to rewarding service and skill with free time doesn't have to be done all at once. It can be introduced a little at a time. In the meanwhile, employers might begin to wonder about the motivation of employees who choose to drone on incessantly for diminishing returns. Governments have a role to play by acting as model employers and by refusing to further subsidize the growth of inequality. Pension fund managers should scrutinize investments for their potential to pay reduced work time/income equality dividends. Entrepreneurs could buy up high-wage, long-hours bloated companies and negotiate a new, free time deal with employees. Regards, Tom Walker ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ #408 1035 Pacific St. Vancouver, B.C. V6E 4G7 [EMAIL PROTECTED] (604) 669-3286 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ The TimeWork Web: http://www.vcn.bc.ca/timework/
