WORKING TIME FLEXIBILITY: TWO CHEERS FOR REGULATION, ONE CHEER FOR THE MARKET. Lei Delsen

Transcription

1 WORKING TIME FLEXIBILITY: TWO CHEERS FOR REGULATION, ONE CHEER FOR THE MARKET Lei Delsen paper presented at the international conference "Arbeitszeit und soziale Sicherheit in der Lebensperspektive" organised by European Commission, SISWO and Hans Böckler Stiftung 9-10 September 2004 Berlin Radboud University Nijmegen Department of Economics Nijmegen School of Management P.O. Box 9108 NL 6500 HK NIJMEGEN The Netherlands Tel: /59 33 Fax:

2 Introduction Flexibility of working time is not new. The difference today is the spread across varied groups of workers and activities and the many forms it has taken. Flexible working time is a very broad term. It refers to all working patterns that deviate from the 9 to 5 rhythm on an average weekly day. In this respect, non-standard work hours refer to work schedules that involve being at work at times outside the standard daily work schedule: evening, night, shift or week-end work). Over the passed years, traditional forms of expanding the duration of work - overtime, weekend, evening, night and holiday working - were regulated and have been eased by regulatory intervention or by collective agreements. The incidence of non-standard hours varies considerably between European countries, partly caused by differences in national regulations. However, also structural and demographic differences contribute to these inter-country differences in non-standard work hours. The Organisation for Economic Co-operation and Development OECD in Paris stated in its influential The OECD Jobs Study (OECD 1994, p. 100) that: "Working time arrangements should be negotiated by management and labour at decentralised level" and that "The main objective of government policies should thus be to remove obstacles to the emergence of more flexible working-time arrangements". The OECD Jobs Study was in favour of loosening up legislation by allowing longer averaging periods (annualised hours, by reducing constraints on night work and weekend work), while at the same time encourage employer-employee negotiations to take advantage of new flexible arrangements. These very specific and unconditional policy proposals imply deregulation, decentralisation and more market working, and hence a shift in the balance of bargaining power from the employee towards the employer. They also imply replacing consultation and the introduction of market failures. By the way: At present in countries like France, Germany and the Netherlands, extending the working week is seen as an adequate answer to compensate the reduction of the workforce caused by demographic factors and a good weapon against to the deterioration of the international competitive position of the business sector of a country. The comparative data analysis for 10 OECD countries presented in the 1994 OECD Jobs Study suggest that (with the exception of Japan) longer annual working hours are associated with higher levels of unemployment. Times have changed. Also for the OECD. Ten year later the OECD in the Employment Outlook (2004, p.34) considers working time from the perspective of the workers and examines it from the perspective of family and work-life balance. I want to address three interrelated questions: 1. Does working-time flexibility integrate more people into paid jobs? 2. Is working-time flexibility efficient? 3. Is offering working-time options to employees a social act? Question 1 is addressed on the macro level and from the government as the main actor. Question 2 is addressed on the micro level of the individual enterprise, and question 3 concerns the individual employee level. Before turning to these questions, first look in more detail to "what is in an name" and some implications of flexible working time. What is in a name? Apart from protecting people against side effects of too long working hours, working time regulation has also been introduced to stimulate employment within the work-sharing paradigm. Working time reduction seems a social act. However, the reduction of working 2

3 hours may result in the working hours which (from an individual s perspective) are shorter than the optimum number. When (state) intervention interferes with market equilibrium in the allocation of hours, additional costs are inflicted on workers and firms. There is a call for flexibility. Working time flexibility is just one option available to have flexible labour input (See transparent Figure 1). The human resource management (HRM) has various options available to react and adapt to these changing and volatile conditions. Related to the response and the policies of flexible labour input applied, a distinction can be made between functional flexibility and numerical flexibility and between internal and external flexibility. In the operational sense numerical flexibility can be defined to include all those HRM practices that help to match the number of employed or engaged by an enterprise and/or the hours worked to the number needed and functional flexibility can be defined to include all those HRM practices that help to improve the skills of those employed or engaged. Figure 1: Forms of flexible labour input Internal flexibility External flexibility Quantitative flexibility Flexible Working times Flexible Contracts Qualitative flexibility Functional flexibility Freelance work, posting, outsourcing Working time flexibility not only concerns different time dimensions, it also concerns different actors and levels. Working time flexibility may refer to the increasing irregular distribution of working hours over the day, week, month, year or over career. The latter is rarely reflected in statistics on working time. It may easily be seen that when these different demand and a supply dimension meet that they may conflict or at least do not match easily (See transparent 2). The transition from collective agreements with standardised labour conditions to tailor-made agreements implies increasing transaction costs for both employer and employee (like administrative, negotiating, and monitoring costs). Asymmetric information between employer and employee in regards to the consequences of working time changes, combined with more freedom of choice, may lead to badly informed individual choices. One may also question whether an individual employee would be capable of making a wellfounded decision/choice. People are penny wise and pound foolish. Markets, including working time flexibility cannot function without regulation, that reduces or avoids market failures, on the other hand regulation is at the expense of individual choice by employers and employees and hence is suboptimal. 3

4 Does working-time flexibility integrate more people into paid jobs? First a personal remark. Paid work is often considered the way to realise inclusion/social inclusion. The European Commission shares this opinion. Also the theme of the present conference, as stated in the flyer, seems to suggest that a paid job is to be preferred over or is far better than an unpaid job to realise social inclusion. The latter was also suggested by Colette Fagan in her speech. Related to the modernisation of working time - a proactive approach - Gerhard Bosch suggests: Individual options for flexible lifelong working hours (the right to work part-time as discussed in the Netherlands; parental or training leave as in Denmark) should be extended to create a balance between the flexibility requirements imposed by the market and the flexibility needed by the individual. Personally as a husband and a father I have to reject this starting point. My wife stepped out of the formal labour market (she reduced her working time to zero during several years) to look after our children and did voluntary (unpaid) work at the school of our children. She was probably more integrated, i.e. socially included, than I personally will ever be behind my laptop or hopping from one "important" conference to another. Now she is working part-time again. Until the end of the 1970s working-time reduction and the promotion of part-time work were seen as a solution for the unemployment problem. During the 1980s the policy aiming at a reduction of unemployment has stressed the deregulation and flexibilisation of the labour market. At the macro level, the (un)employment effects of increasing working time flexibility depend upon the elasticity of market demand and on the prevailing wage regime. In the case of nominal wage rigidity working time may even lower employment; given real wage rigidity it may have positive employment effects. The (un)employment effects of increasing working time flexibility also critically depend on the cost effectiveness of working time flexibility. That brings me to the second question. Is working time flexibility efficient? The neoclassical analysis focuses on production costs. Working time flexibility allows longer operating time relative to competitors. Ceteris paribus it reduces unit costs because of more effective use of equipment, buildings, machinery and vehicles and hence increases competitiveness. The latter is the starting point for the recommendations by the OECD Jobs Study. The fallacy of composition applies: what applies to the micro level (individual) does not (necessarily) apply to the aggregate level (macro). In institutional economics the focus is on the transaction costs, the costs of running the economic system. Flexible and diversified working-time arrangements not only diminish the advantages of economies of scale. Moreover, working time flexibility and offering choices to employees related to working time result in increasing (hidden) transaction costs that have to be borne. Within a firm, the divergence between (individual) working hours and operating hours or day, week of per year increasingly makes demands on the logistic and organisational procedures. More attention has to be paid to the information and communication systems. For instance, more rosters and time tables are needed; opportunities for job rotation have to be created or increased, more time is needed to transfer duties. Moreover, the people on leave or on reduced working hours have to be replaced by workers from the external market. Where on the one hand employers complain about what they call "excessive regulations" imposed by state, it is ironical to see that on the other hand they are themselves actively involved in the creation of complex and expensive systems of working conditions. Whether the 4

5 cost-benefit balance is positive or negative is an empirical question. For some, however, it is just a matter of believe. For the employer flexible and diversified working-time arrangements imply additional fixed costs of engaging people and creating jobs. Three solutions are available. The first solution available is, the employers reduces hourly wage costs by increasing structural overtime. Secondly employers may also react by creating insecure marginal jobs in order to compensate for or avoid fixed costs. The third option available is the lengthening of the normal working week of full-time employees. Hence, all three solutions imply that working time flexibility may imply less in stead of more jobs, and probably more unemployed. Not social integration, but segmentation is the result. Is offering working-time options to employees a social act? At the micro level due to hold-up problems and asymmetric information working time is particularly vulnerable to entrepreneurial as well as to worker's opportunistic behaviour, given the asymmetric distribution of bargaining power. Regulation of working time was intended to protect workers from excessive working days. Flexible working hours are sought by employees to have a better balance between work and private life. When freely chosen, flexible working hours offer employees greater flexibility to reconcile time spent at work with other activities. So it is a matter of preferences. In the neoclassical economic theory offering (more) choices is considered better. More choices will not necessarily result in more wellbeing of the person in question. It may also result in stress and in wrong choices and decisions, because they do not possess enough expertise to make well-informed decisions. For the employer non-standard work hours offer increased staffing flexibility. However, as is stated by the most recent OECD Employment Outlook these "unsocial" work hours may also be a potential source of conflict between job requirement and family life (OECD, 2004, p. 40). Increased conflict between work hours and family life is clearly established: conflict is more frequent for workers working non-standard hours or whose work schedules are variable or unpredictable, and significant lower for workers who have some control over their working time or have some flexibility in scheduling days off. Hence, from the individual perspective the temporal flexibility may be sub-optimal. People choose not to choose, the large majority of employees chooses the standard package of working conditions. There is a simple reason or explanation to this. People do not realise or are not completely aware that the choice they make will have consequences for e.g. the pension base or as a result their income crosses certain social security thresholds. Does more options just imply the freedom to make stupid choices? Hence, paraphrasing on the title of this conference: in a life perspective flexibility in working times of the individual now is at the expense of social security in the future. Moreover, are employees able to make a balanced choice? People are unable to foresee and look over everything. Individual people are confronted with a big problem in reality. In their 'time management' people are not good at guarding their agenda. It is difficult to distribute available time in such a way that sufficient time remains for those things that people really consider important. Because people have to little discipline and because of bounded rationality it may be advantageous to have rules imposed upon them from the top, rules that order time for them. 5

6 Finally, apart from allocation also distribution is affected by more flexible working times. Introducing more market working in working conditions by offering the possibility to exchange them strengthens the existing tendencies towards segmentation between different categories of employees. It will result in adverse selection, for only certain categories of employees can afford to materialise their working time preferences. It implies a shift in solidarity between various groups in the labour market. 6. Conclusion on (de)regulation of flexible working time Regulation of working time avoids opportunistic behaviour of employers and employees. More flexible working time arrangement is by definition an introduction of more market forces. Hence is accompanied by market failure. The question then is whether legal and institutional changes can actually pull people in a certain direction or can it only push, that is formalise tendencies already available in society. More flexible working time regulations (changes in formal institutions) may be ineffective, i.e. do not deliver the desired results, when informal rules and preferences of employers and employees are stronger and are not in line with the formal rules. More flexible working time regulations (changes in formal institutions) may be inefficient, i.e. not cost effective or improve the wellbeing of people when information is incomplete and asymmetric distributed or when there is an unbalanced distribution of market and bargaining power. The positive employment effects of flexible working times are questionable. Differences in working conditions between categories of workers increase, strengthening the tendencies towards segmentation between different categories of employees. No optimal policy is available: two cheers for regulation of working time, one cheer for the market. 6

7 FLEXIBLE WORKING TIMES From the demand side - Shift working - Flexible rosters - Year rosters (annualised hours) - Weekend work - Night work - Evening work - Overtime work - Variable working times - Short-time work From the supply side - Part-time work - Job sharing - Compressed work week - Flexi-time - Flexible leave/career break - Sabbatical leave - Gradual retirement Practical problems - Matching problems due to different time dimensions - Differences in working times and operating times - Administrative burden (hidden transaction costs) - Quality of the choices made (penny wise and pound foolish) 7

8 CONCLUSIONS ON (DE)REGULATION OF FLEXIBLE WORKING TIME: Deregulation implies introducing more market working in working conditions. Deregulation is accompanied by market failures. Regulation is ineffective when informal rules and preferences of employers and employees are strong and are not in line with the formal rules. Regulation is inefficient when information is incomplete and asymmetric or when there is an unbalanced distribution of market and bargaining power. The (un)employment effects of more flexible working times are questionable. More flexible working times strengthens the existing tendencies towards segmentation between different categories of employees. There is not optimal solution: one cheer for the market, two cheers for regulation of working time. 8