However, this view is far from economic holy writ; indeed, it is very
closely related to the view that inflation and/or devaluation cannot
permanently raise output or reduce unemployment. While this is not a bad
general rule - one cannot simply inflate out of trouble - is not
necessarily valid if there are significant hysteresis effects or if the
economy is for some reason "stuck" at a low level of employment or
output (or an overvalued currency). Look at the experience of the UK
since 1992 for an obvious example of a devaluation having real effects.
In other words, this debate is a classic example of what Keynes meant in
his famous reference to the "long-run"; he was attacking economists who
claimed the government couldn't do anything to help because "in
equilibrium" policy couldn't really change anything.
Indeed, Gavin Cameron's discussion of training/skills etc recognizes
that the NAIRU is not some immutable constant; the right policies can
reduce it. So the question is really whether cuts in hours could help.
Since there is a great deal of evidence that the longer you are
unemployed, the more difficult it is to get a job, if cuts in working
hours get people into jobs in the short run, then it might well help in
the long run too: hysteresis again.
As it happens, I don't personally believe cuts in working hours will do
much to reduce unemployment in countries like the US and UK where the
main remaining problem is the long-term structural unemployed. In these
countries, the main benefit are the wider social ones (reduced stress,
better family life, and general "quality-of-life" issues). In European
countries where there is much more mass and youth unemployment, however,
cuts in hours might help unemployment for some groups. In any case, we
should not be distracted from proper analysis by the "lump-of-labour"
argument.
> -----Original Message-----
> From: Gavin Cameron [SMTP:gavin.cameron@nuffield.oxford.ac.uk]
> Sent: Monday, June 01, 1998 10:06 AM
> Subject: uk-policy pop solutions for unemployment
>
> To conclude my discussion of the work-spreading tax, compare the
> following
> quotation from the book 'Unemployment' by Layard, Nickell and Jackman:
>
> "The idea here is to redistribute the available work to more people.
> But
> once again, the available work is not given - that is the 'lump of
> labour
> fallacy'. The equilibrium unemployment rate is independent of hours
> of
> work. Thus if hours are reduced and employment rises for a while,
> wage
> pressure will soon increase and the amount of work available will have
> to be
> reduced. Employment will revert to its former level. Thus cuts in
> hours
> provide a poor antidote to unemployment. But they certainly provide a
> lower
> standard of living." (page 73).
>
>
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