Achieving the four-day working week

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Achieving the four-day working week

Blog Post

Written by John Berry on 20th November 2018. Revised 27th January 2021.

6 min read

andreas-klassen-401337-unsplash ProductivityBack in November there were several articles in the press (by Coco Khan and Owen Jones for example) on wellbeing and the benefit of firms moving to a four-day working week. Indeed, Labour’s John McDonnell proposed it then as party policy. And follwing the Labour Party annual conference, McDonnel hailed that a Labour administration would introduce "a shorter working week with no loss of pay".

It’s good as a vote catcher, but it’s more complex than most politicians and commentators realise. Government might be able to mandate such revolution for public services, but, for the private sector, the issue is big – and deep. It begins with what life is about for investors and employees and what freedoms are available to firms. To understand how we might achieve a four-day week, we must analyse the typical UK firm and investigate employee and shareholder motives.

Investor attitudes

From the firm’s perspective, its shareholders made an investment and they want a return on that in the not too distant future. The UK has a short-term attitude, so, that return is expected soon – venture capitalists and others have a timeframe of two to three years during which they’ll invest before selling up and moving on. In Germany, investors are happy to wait 10 years before they see returns.

Realising profit and paying dividends is all-important in all firms. To realise profit, employee performance is all that matters. Employee performance depends on their hours worked and their productivity.

The UK has a productivity problem. UK workers attain almost the lowest productivity of all major EU economies. French workers earn as much for their employers in four days as ours do in five. And to keep our firms profitable and us enjoying the pay we do, we work the most unpaid overtime.

Investment options

Productivity depends on worker competencies and the technology they use. Firms can increase productivity by investing in staff development to grow skills and knowledge or by investing in new technology for workers to use – or indeed to dismiss the workers and embed their competencies in machines.

Whether shareholders are prepared to re-think their profit expectations (and hence entertain reduction in hours worked without any increase in productivity) depends much on the nature of the business.

Financial flexibility

Those of us who have invested in and run firms that earn super-normal profits – with gross margins of 80% and net profits up at 30% - know the meaning of flexibility. In this case the P&L is squarely on the black side of the break-even fence. Dropping hours worked without commensurate improvement in productivity is possible, and depends only on shareholder attitude. Those who struggle with normal net profits of between 3% and 10% know that any disturbance in the expenses side of the P&L will tip the firm into the red. For their shareholders, reduction in hours is not for discussion.

Flexibility also depends on the shareholders’ attitude to investment. Short-termism breeds an exploitative attitude and resulting minimal investment. Shareholders with a long-term attitude, in a firm making super-normal profits, are happy to invest. They invest to grow value, not deplete value by awarding annual dividends. They know that getting productivity up supports their version of the profit motive – and they have the necessary surplus funds. As long-termers, they’ll still be around to reap the rewards. Short-term investors are in catch-22. They want the improved profit, but the firm can’t afford to invest in the people and the technology needed to get it. They’re not prepared to hang around while enduring below-expectation pay-outs while employees work less.

Employee motives

From the employee side, UK workers have come to expect good salaries. They need to pay their rent or mortgage. They expect foreign holidays. They are highly materialistic. They are not interested in discussing a reduction in pay for a reduction in hours. They epitomise the instrumentality of money – more buys more and, hedonistically, makes them happy. Across the nation, our workers don’t embrace the eudaimonic notion of happiness through meaning and growth. That’s for the Scandinavians.

The result is that employees are generally reluctant to invest in themselves. Like their shareholders, they are reluctant to abandon their own personal profit motive. Like UK investors, employees take a short-term view. As reports from the Open University and other learning institutions targeting older students show, investment in long-term personal improvement is significantly down.

Acknowledged benefits

So, the issue is not if a four-day week would be beneficial to the nation and to its people. That argument’s been made and there are plenty of examples of how well it works. The issue is that our firms are incapable of reducing the working week because shareholders aren’t in it for the long term. And our employees aren’t prepared to earn less or invest in themselves either.

It’s impasse.

When two institutions – firms and workers – are not prepared to move position, or when no one party controls the necessary action, a mediator is needed. A Labour government might legislate to force a four-day week, but with that would come wide-spread company collapses in the short-term and massive investment in technology to replace employees in the long-term. Most firms don’t enjoy the flexibility that would allow such an abrupt implementation.

Action plan

So far, no party has been prepared to grasp the nettle. Government could dramatically reduce tax for firms prepared to take a long-term view and invest. But in the short-term, that would reduce tax revenues, demanding further Government borrowing. The Government of the day would have to be sure of the outcome – that GDP would recover, and with that tax revenues would rise, while the nation enjoyed universally improved wellbeing.

Unlike fairy stories, the Nirvana of the four-day week is possible.

This four-point action plan is needed to change things to everyone’s benefit.

• Shareholders must change their investment attitudes. Investment must be for at least ten years.
• Shareholders must instruct their managers to improve productivity by investing in people and technology.
• Employees must embrace personal development and the use of new technology.
• As productivity and profit rise, so the working time must reduce until the four-day week is achieved.

But, the big question is, who will take the lead to make it happen?