The Associated Press is reporting the France has decided to abolish the 35 hour work week, as long as businesses pay the workers for the extra time. In order to make sense of this, you need a little background information. A few years ago, someone came up with a novel way to address the persistent unemployment problems in France. At that time, workers worked a standard 40 hour week. So the thinking was that if we just limit the work week to 35 hours per week, then businesses will need to hire more people in order to make up for the time lost.

Guess what? It didn't work.

Part of the problem was that when they reduced the work week to 35 hours, businesses were not allowed to make any change in pay to reflect the fewer working hours. Therefore, the business faced a situation where the employees were working fewer hours, but payroll stayed right where it was. So they didn't hire anybody. I believe The Economist referred to this as the "lump of labor" fallacy, which is the mistaken belief that there is a set amount of work that needs to be done, so if you cut back the hours of people currently working, businesses will still need that work to be done and will have to hire people.

The list is long why this was a bad idea. Let me just review one. First of all, the question of whether to automate an activity or hire a human being to do the work is basically a question of economics. There are a lot of things that people can do better than machines can do, just like there are things machines can do that people don't do so well. When a business hires a person rather than automates it is because the person can either produce the same product with better quality, or for less money. If you arbitrarily change the amount a person is paid, then the economic equation changes. All of a sudden, it now might make sense to make that multi-million Euro investment in computer systems in order to be more efficient rather than hiring 100 more factory workers. And that's just what they did.

Originally published March 22, 2005.