Jack Doughty and Victor Yan
If you were born in the Western world in the 1800s, there’s a pretty high likelihood that you’d work a 100-hour work week. You wouldn’t wait for the weekend because, well, it didn’t exist. It was a 7-day slog. You would work, sleep, and work some more. Every. Single. Day.
Historically speaking, the shortening of the work week has been a method for compromise between employer and employee. It goes without saying, then, that we’ve come a long way; courtesy of improvements in workers’ rights, productivity, and technology. In fact, it wasn’t until 1948 that the standard 40-hour, five-day work week that we’ve come to know was introduced into Australia. If economics is indeed the science of managing tradeoffs and finding balance, the question for economists remains: have we reached the sweet spot?
Jacinda Ardern, the recently re-elected PM of New Zealand, argues the contrary, having toyed with the idea of a four-day work week in tackling the economic toll of the COVID pandemic. In a public address, Ardern suggested that the greater freedom of a three-day weekend would help stimulate domestic tourism, while improving productivity to offset any loss of output from reductions in work hours. Critics, on the other hand, counter that risking any further reductions in economic output would be fatal to the struggling Kiwi economy. More of an ‘if it ain’t broke, don’t fix it’ approach.
So, is Ardern’s proposal viable? Bearing in mind productivity, growth in weekend-industries, and the Amsterdam lab rat, Oxbridge economist Kate Raworth argues that the answer may in fact lie within a donut.
If employees could competently produce the same level of output in four days as they can in five, there would obviously be no grounds for debate; the four-day work week would be a no-brainer. Hence, in exploring the potential for a shorter work week, the golden snitch we chase is the expected change in productivity.
Employers would be well aware that time spent in an office is not the only causal indicator of a business’ productivity. In exploring the importance of happiness and productivity, researchers at Oxford University found that on average “happy workers are 13% more productive” than their unhappy colleagues. It is worth mentioning that “happiness” is typically measured through worker satisfaction surveys. So, if a longer weekend has a meaningful enough impact on worker satisfaction, employers could potentially be fairly compensated through improved productivity.
That certainly seemed to be the case for Microsoft Japan last year, witnessing a 40% increase in productivity in trialling a four-day work week for its entire workforce. Andrew Barnes, the pioneer of the four-day work week, attests to similar results for his New Zealand-based finance company.
That being said, Japan is infamous for its high-stress work culture, as is the finance industry in general, with almost 25% of Japanese companies requiring employees to “work more than 80 hours of overtime a month”. It has been noted in urban Japan that at 2am you would more likely come across chronically tired businessmen commuting home from work than any night clubbers.
Ultimately, this culture of overworking has become so commonplace that the Japanese have coined the term “Karoshi” – translated literally to “death by overwork”. The phrase arose after a string of worker deaths suffering from increased blood pressure, lack of sleep and poor diets having prioritised time at the office over their own health. And that’s not to mention the horrific implications for employees’ mental health, as Karoshi cases have also been associated with numerous suicides from excessive stress in the workplace.
While a doctrine of “you only get out what you put in” certainly makes sense, up to a certain point, working longer and harder eventually pushes any individual towards a zone of diminishing marginal returns. In fact, an OECD study found weak correlations between hours worked and labour productivity within an economy. Where Japan ranks high in terms of average annual hours worked at 1,710, it falls short in productivity, being ranked in the bottom half of OECD nations. Overall, a policy and cultural shift towards reducing overworking could perhaps bring a free lunch towards improving the wellbeing of workers and enhance productivity gains, translating onto better output metrics for firms. That condition, however, may indeed only hold in extreme instances.
Boost to Weekend Industries
Pundits have criticized the seemingly “fairy-tale” ambitions of Jacinda Ardern’s policy proposition. As we are reminded, economics is the study of balancing trade-offs, and in keeping with the well-proven adage, “you can’t have your cake and eat it too”.
It is indeed interesting that these proposals have arrived during an unprecedented COVID-19 pandemic, where greater uncertainty grows surrounding economic outcomes such as job security and growth targets. While New Zealand has undoubtedly been the poster child of sound public health management during the COVID-19 pandemic, its current economic snapshot certainly does not look as rosy. According to the big banks, the economy is expected to experience an ultimate economic contraction of 10.5-13%, with recent June quarter GDP figures confirming that the economy has already shrunk by 12.2% in its largest quarterly drop ever.
However, there is an economic rationale towards the 4-day work week design, specifically prompting demand towards “weekend industries”; sectors that receive the entirety or bulk of their business during the weekend. These are the bars, clubs and restaurants, as well as the domestic tourist trips that you visit on your days off. Tourism is a key industry in New Zealand, accounting for more than 229,000 employees and 5.8% of the nation’s GDP, with industries supporting tourism accounting for an additional 4.0%. In 2019, New Zealanders spent nearly $4 billion USD more in the country compared to international tourists. In light of COVID-19 travel restrictions with which we have all grown accustomed, the fact that 58% of NZ’s tourism comes from domestic travel indicates that reflating domestic tourism could serve as a gateway towards salvaging their economic prospects.
Despite this notion, there has been divided commentary over the economics behind the argument for domestic tourism. For instance, notable ANU researcher Rabee Tourky vocally expressed disdain towards Ardern’s policy, tweeting that “we need 6-day work weeks to make up for lost time”.
Doughnut Economics: An Amsterdam Case Study
Often the implementation of economic policy can be dramatically de-risked if precedent cases have been deemed successful. While Ardern’s attitude towards rebalancing the scales between hard economic numbers and holistic human wellbeing shifts away from the conventional, this style of thinking towards policy has been tried, tested and proven in the past.
Kate Raworth, a prominent economist from the University of Oxford and University of Cambridge pioneers this counter-cultural economic thinking. In her book “Doughnut Economics” she designs a framework to formulate conditions towards a sustainable economy. It is, in essence, a doughnut:
As per the “Goldilocks Rule”, and the law of scarcity in general, Raworth suggests that any extreme at either end of the spectrum for an economy is undesirable. Too much pursuit for “growth” forces us beyond the outer layer of the doughnut, where we overshoot our ecological systems culminating in adverse outcomes such as climate change and loss of biodiversity. In contrast, a lack of growth will fail to manifest material essentials to our earthly population, including food to eat, a bed to sleep in and education to learn and grow from. Raworth concludes that the happy-medium in the so-called “dough” of the doughnut is an equilibrium that economies should strive for, where the needs of humans can be met with respect towards our planetary boundaries. It’s pretty simple. Don’t cut off your nose, and you won’t spite your face.
While many may dismiss this type of ideology, regional governments such as that of Amsterdam have indeed taken note of Raworth’s teachings, and have established systems endorsing her message for sustainability. In 2016, the Netherlands formulated the “Programme for a Circular Economy”, a framework to guide the country to a fully circular economy by 2050 and reduce raw material use by 30% before 2030. This involves the re-interpretation of common waste as a resource rather than a pollutant.
For example, some projects that have manifested from this new type of thinking include:
1. The WASTED program in Amsterdam North helps to change consumer attitudes towards recycling. Citizens get a reward for each bag of plastic, glass, paper or textile brought towards collection points in the neighbourhood in the form of digital coins. These digital coins are then tradable for free or discounted goods at local shops and restaurants.
2. Instock, recognising that bread is the second most wasted food after dairy, have placed initiatives aiming to turn bread waste from local supermarkets into beer products saleable at its own restaurants
3. The Johan Cruijff Arena Battery provides renewed life for depleted Nissan batteries via a micro-grid storing renewable energy, generated by the stadium’s solar panels. Amsterdam’s Arena has become one of the most sustainable stadiums in the world as it has shed off its reliance on diesel based generators, even as a backup power source.
With a country such as Amsterdam embracing this new wave of thinking that puts growth in the backseat, it offers a favourable backbone to Ardern’s proposed 4-day workweek policy.
It is perhaps worth bearing in mind that the movement to the 5-day work week was once described as a “dangerous experiment” in the midst of economic uncertainty in 1940s Australia. Economic growth is, fundamentally, desirable for the ultimate improvements it brings to a nation’s quality of life. However, if we jeopardise happiness in the process of pursuing this GDP growth, we fail to see the forest for the trees. Only time will tell whether Jacinda Ardern’s proposed shift will be the next major step in the history of the standard work week, or if New Zealand will overshoot the sweet-spot, and become subject to the law of diminishing returns.
Jack Doughty is is a Committee Member and Writer for UNIT – University of Melbourne, specializing in top-down investing and mechanisms driving financial markets.
Victor Yan is the Vice-President of Publications for UNIT – University of Melbourne, specializing in financial investments and economic policy.
Freakonomics Podcast “Is Economic Growth the Wrong Goal?”: https://open.spotify.com/episode/6wvf1SoREJykZirFNVrkq4?si=J_tdT0YUQpmVH_C5kFP1BQ
Kate Raworth: Doughnut Economics (2017)
The Guardian: https://www.theguardian.com/world/2020/apr/08/amsterdam-doughnut-model-mend-post-coronavirus-economy
Sustainable Amsterdam: http://sustainableamsterdam.com/2018/02/amsterdam-embraces-the-circular-economy/
Disclaimer: The views expressed in this article are solely that of the author’s, and do not necessarily reflect the position of UNIT nor the University of Melbourne. The advice given is general in nature and does not consider an individual’s personal financial circumstance. Transacting off this information is done so at one’s own risk, and individuals are encouraged to consult a finance professional before making investment decisions based off of this article.