By Dana Sookdeo
“The biggest problem is not to let people accept new ideas, but to let them forget the old ones.”John Maynard Keynes
The Economic Effects of the Four Day Work Week
The Great Resignation
Much has been written and said about the overall positive effect of employee productivity on the wider economy. In fact, for those economies whose resource endowment is their human capital base (like the Caribbean and other developing nations), the pillar of economic growth rests on their human capital, their productivity, and contribution to society.
Worker productivity has always been emphasised, and the overall productivity has always been calculated by ratio of the output of goods and services to the labour hours devoted to the production of that output. Over time however, worker productivity and output levels became prioritised, and overall worker well-being slowly became neglected.
Economist John Maynard Keynes famously prophesied that by 2030, people would be working as low as 15 hours each week. While he was correct about the direction of travel, but he was incorrect about how fast we would arrive. By 2019, the average number of hours worked by men and women was 37 and 30, respectively.
Since the COVID-19 pandemic hit in 2020, something interesting has been observed- on a global level. With the shift in working methods, employees began wanting more, and demanding better working terms and conditions. After months of “sitting tight in stagnation” in the midst of stress and confusion, they were ready to make changes for themselves. If they couldn’t control a virus that was wreaking havoc on life as they knew it, they could at least manage their work life.
This worldwide act of employees resigning from their jobs scored the term “The Great Resignation”. People were leaving their jobs and there’s no indication that this mass exodus will slow any time soon. Did the pandemic just offer individuals the opportunity to reflect on how much they were unhappy with their jobs? Or has this storm been brewing for years, and 2021 was just the year “The Big Quit” occurred?
Statistics reveal that the top reasons people left their jobs this year include dissatisfaction with how their company dealt with them during the Pandemic (19%), poor income or a lack of benefits (17%), and a lack of work-life balance (13%). A recent Joblist survey also indicated that 22% of all job searchers reported abandoning their prior job, while 73% of presently employed individuals stated they are actively considering quitting their positions.
Many individuals feel fatigued and burned out as a result of having worked too hard for too long during the pandemic. Another element that appears to be contributing to high resignation rates is a perception of being professionally trapped. According to a poll conducted by personnel management platform supplier Lattice, 43% of respondents felt their career trajectories had halted or slowed to a crawl. According to the report, 38% of Gen Z workers (born after 1997) are searching for positions with better openness surrounding job path and advancement.
Can a Four-Day work week be an answer to the Great Resignation?
At a time when employees are demonstrating that it is more effective working from home, businesses are now considering the four-day workweek, which points to the fact that the five day working week is a societal, economic, and political construct. In fact, people in the Western world worked six days a week and only took Sundays off until the beginning of the twentieth century. In 1908, a few small enterprises in the United States started a groundbreaking practice: the five-day work week.
Two key concepts have historically driven people’s excitement for a four-day week. For starters, it is suggested that shorter work weeks can lead to increased productivity (Coote et al, 2020). Secondly, shorter work hours have been linked to higher levels of enjoyment and better work-life balance (Gash et al, 2018).
Shorter work weeks have lately been recommended as a way to sustain high employment in the aftermath of the Covid-19 outbreak (Frey et al, 2020). The assumption is that, similar to an extended furlough system for industries heavily hit by the pandemic, this would avert layoffs and facilitate a longer-term shift to more desirable patterns of working hours.
How can a Four day work week bring significant Economic Gains?
Proponents of a four-day work week say that working fewer hours will increase productivity and, as a result, income increases. This increase in production will initially ‘pay’ for the reduced work week. The increase in productivity, especially in human intensive economies, can bring economic gains overall.
A four day work week can in fact have the potential to increase GDP by simulating the economy through demand. With more spare time, people are more aware of our wants and consume more than while we are working. According to a Gallup poll conducted in 2009, people spend 20% more money on Saturdays and Sundays than they do on weekdays. If employees are always working, they may make a lot of money, but not have the ability to spend it. They may save more, but saving does not propel the economy; rather, it slows it down – the paradox of thrift, as Keynes termed it.
A reduction in technical unemployment can also be realised with a four day work week. Numerous studies on the effects of job displacement over the last thirty years show that workers who are laid off for reasons beyond their control, such as plant closures, face worse labour market outcomes: fewer re-employment opportunities, earnings losses, lower consumption, and even poorer health. Displaced workers with at least three years of employment experience pay losses ranging from 20% to 40%, which last for twenty years. These earnings losses are explained by a decrease in employees’ re-employment probability – they endure several periods of unemployment, and sluggish growth in their re-employment pay. The reasoning was that when companies invest in labour-saving technologies, it lessens the motivation to lay off people. Consider a company that invests in automatic checkout equipment and discovers that it no longer requires as many hours of labour, prompting it to consider layoffs. Shortening the work week by removing hours from the present workforce will put such notions on hold for a time. While it may not be enough to encourage enterprises to recruit additional people, it can help to prevent displacements.
Additionally, reducing the working week benefits everyone in the economy, but some more than others. Women who are now forced to work part-time due to the high costs will be placed on a more equal footing with males. Young employees, who face increasing unemployment and bleak job prospects, will have additional possibilities to get labour-market experience on weekends. Older people will be able to work for longer periods of time, ensuring the sustainability of social security systems. Workers will get the carrot, while capitalists will get the stick. Capitalists, on the other hand, will benefit from improved capitalism. Leisure sectors will provide profit possibilities, and new enterprises will emerge to meet rising demand.
Overall, the economy will be the largest beneficiary. It will become leaner, more liberated, less wasteful, and more inventive, and it can benefit everyone.
Can a four day work week work in the Caribbean?
What can we take away from 4 day work week trials that already took place? The Icelandic trials, which lasted from 2015 to 2019 showed that the decrease in hours was achieved without any loss of production or service quality, therefore ‘increasing’ productivity at the same time as workers’ subjective well-being (Haraldsson and Kellam, 2021).
The decrease in hours was achieved without any loss of production or service quality, therefore ‘increasing’ productivity at the same time as workers’ subjective well-being (Haraldsson and Kellam, 2021). This obviously shows some indication of a positive influence. However what should be noted is that the research excluded schools, hospitals, and the private sector, instead focusing on very minor hours reductions in office-based workplaces.
In the Caribbean, there is undoubtedly the critical need for effective government policy and execution in facilitating the transition to a shorter work week. Individual enterprises are unlikely to be able to innovate in this field without exposing their company to significant risk. The public sector may assist enterprises in experimenting, therefore breaking down entrenched conventions and expectations regarding working hours, which are frequently a barrier to transformation.
On the other hand, trials in the Caribbean will also need to address some difficult problems around the socio-economic factors such as the equality of a four-day week transition with no loss of pay for individuals already working four days or less, who may wind up earning less than their colleagues whose hours have been cut.
Mandating a shift to a shorter working week (with no loss of pay) without substantial outcomes from the pilots would be a highly hazardous strategy. Funding issues and labour shortages may arise as a result. It is also unclear if a reduced work week will solve broader worries about job or wage instability.
Therefore, proposed pilot projects are welcomed. These studies must carefully evaluate the notion that reduced working hours can increase productivity if they are to be beneficial. It will also be necessary for them to investigate differences in results by sector or task. The pilots should determine if shorter work weeks improve or degrade service delivery quality.
David Eiser Fraser of Allander Institute. “What Might Be the Effects of a Four-Day Working Week?” Economics Observatory, January 19, 2022. https://www.economicsobservatory.com/what-might-be-the-effects-of-a-four-day-working-week#:~:text=Proponents%20of%20a%20four%2Dday%20week%20argue%20that%20working%20fewer,productivity%20(see%20Figure%202).
“Friday Is the New Saturday: How a Four-Day … – Bbk.ac.uk.” Accessed February 2, 2022. https://www.bbk.ac.uk/news/friday-is-the-new-saturday-how-a-four-day-working-week-will-save-the-economy.
Kaye, Leon. “The Four-Day Workweek Could Help Solve the Great Resignation.” The Four-Day Workweek Could Help Solve the Great Resignation, January 22, 2022. https://www.triplepundit.com/story/2022/four-day-workweek-great-resignation/735231.
“Who Is Driving the Great Resignation?” Harvard Business Review, November 10, 2021. https://hbr.org/2021/09/who-is-driving-the-great-resignation.