Saturday, May 22, 2004

Henry Hazlitt

For those that have not figured it out, there are four free online books by Henry Hazlitt on the net: Foundations of Morality, Conquest of Poverty, Time Will Run Back and The Wisdom of Henry Hazlitt. The books can be found here.

NAFN Á MYNDOne of the beutiful promises that sound so fine just before election time is a shorter working week. Who does not want that, why work for 40 hour when one can work less. The 'short working week' has not gained too much popularity in the US or Iceland but here the working week is 40 hours and if anyone works past 8 hours a day, the employer has to pay extra wages for those hours. This has not noticably hampered productivity since most people work more than 40 hours a week (many pundits actually complain about that), probably because most other countries have similar or more severe restrictions. In France the working week has been getting shorter and shorter for the last decades, and a few years ago the week was reduced to 35 hours.

These regulations do interfere with the natural right of employees and employers to make whatever contracts they choose, thus restricting economic development. It is quite sad to see that happen since most people actually do not want these restrictions, even in France.

The ideology behind the the short working week is based on the notion (fallacy) that this 'creates more jobs'. Henry Hazlitt did show this in his book THE Economics in one lesson. Alhtough more people might be employed in some sectors, at least initially, the productivity does not increase.

Hazlitt does attack the fallacy of overtime wages in , The Wisdom of Henry Hazlitt (free online text):

A similar judgment must be passed on all "spread-the-work" schemes. The existing Federal Wage-Hour Law has been on the books for many years. It provides that the employer must pay a 50 percent penalty overtime rate for all hours that an employee works in excess of 40 a week, no matter how high the employee's regular hourly rate of pay.

This provision was inserted at the insistence of the unions. Its purpose was to make it so costly for the employer to work men overtime that he would be obliged to take on additional workers.

Experience shows that the provision has in fact had the effect of narrowly restricting the length of the working week. In the ten year period, 1960 to 1969 inclusive, the average annual work week in manufacturing varied only between a low of 39.7 hours in 1960 and a high of 41.3 hours in 1966. Even monthly changes do not show much variation. The lowest average working week in manufacturing in the fourteen months from June, 1969 to July, 1970 was 39.7 hours and the highest was 41 hours.

But it does not follow that the hour-restriction either created more long-term jobs or yielded higher total payrolls than would have existed without the compulsory 50 percent overtime rate. No doubt in isolated cases more men have been employed than would otherwise have been. But the chief effect of the over time law has been to raise production costs. Firms already working full standard time often have to refuse new orders because they cannot afford to pay the penalty overtime necessary to fill those orders. They cannot afford to take on new employees to meet what may be only a temporarily higher demand because they may also have to install an equivalent number of additional machines.

Higher production costs mean higher prices. They must therefore mean narrowed markets and smaller sales. They mean that fewer goods and services are produced. In the long run the interests of the whole body of workers must be adversely affected by compulsory overtime penalties.

All this is not to argue that there ought to be a longer work week, but rather that the length of the work week, and the scale of overtime rates, ought to be left to voluntary agreement between individual workers or unions and their employers. In any case, legal restrictions on the length of the working week cannot in the long run increase the number of jobs. To the extent that they can do that in the short run, it must necessarily be at the expense of production and of the real income of the whole body of workers. The Wisdom of Henry Hazlitt: Chapter 23: False Remedies for Poverty

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