Although he provided only a perfunctory citation to S. J. Chapman, Pigou's analysis of the hours of labor followed closely five main points of the theory Chapman presented in 1909 in his presidential address to the Economics and Statistics section of the British Association for the Advancement of Science and subsequently published in the Economic Journal as "Hours of Labour."
In his article, Chapman referred to a mass of evidence from the 19th century indicating that reductions in the hours of work had not led to proportionate declines in output and, instead, had often led to increases. The reduction of hours allowed better rested workers to produce as much or more in shorter hours. Pigou inferred from the same evidence "that hours of labour in excess of what the best interests of the national dividend require have often in fact been worked. The reason for this is that "after a point, an addition to the hours of labour normally worked in any industry would, by wearing out the workpeople, ultimately lessen, rather than increase, the national dividend."
Both economists referred to the several complicating factors but arrived at the same conclusion regarding a hypothetical optimal length of working day. For Pigou, the "essential point" was that "in each several industry, for each class of workers there is some length of working day the overstepping of which will be disadvantageous to the national dividend." Similarly, Chapman had concluded that beyond a certain point, each additional hour of work would contribute to the output of the current day's total output but at the expense of the following (and subsequent) day's capacity for effort. The intensity of the work involved would dictate the point at which cumulative output would begin to decline and thus the length of the optimal working day.
The historical evidence would appear to contradict the expectation that self-interest would lead employers and employees to pursue an optimal working day, from each of their perspectives and to negotiate a compromise. Chapman's analysis explained why competition would tend to produce excessively long days. Workers would choose a day longer than was prudent for their welfare because the prospect of unemployment would cause them to give higher consideration to immediate earnings than to their long-term earning capacity. Similarly, because well-rested workers could be lured away by an offer of higher wages from another firm, employers could never be certain of benefiting from the short-term restraint that maintaining an optimal workweek would require.
Pigou explained the market failure as follows: "workpeople, in considering for what hours per day they will consent to work, often fail to take account of the damage that unduly long hours may do to their efficiency." In the case of employers, they "also often fail to realise that shorter hours would promote efficiency among their workpeople, and so would redound to their own interest." Furthermore, "except in firms which possess a practical monopoly in some department of industry, and so expect to retain the same hands permanently, the lack of durable connection between individual employers and their workpeople makes it to the employers' interest to work longer hours than are in the long run to the interest of production as a whole."
Insofar as Chapman's analysis of the hours of work was regarded as both novel and canonical (Hicks 1932, Marshall 1920, Robbins 1929), the conclusion is manifest that Pigou's presentation was essentially a recapitulation and that his scant attribution to Chapman en passant left much to be desired. This quibble over a footnote may seem at first an exercise in academic trivia except that Chapman's earlier scholarship on the Lancashire cotton industry also has an important bearing on the hours of work issue – one that links back to Henry Sidgwick's consideration of "the system of natural liberty considered in relation to production" in the second edition of his Principles of Political Economy (1887).
In 1932 John R. Hicks stipulated a condition for overcoming the type of market failure indicated in Chapman's theory and reiterated in part III of Pigou's Economics of Welfare. Hicks conjectured that a "very modest degree of rationality on the part of employers will thus lead them to reduce hours to the output optimum as soon as Trade Unionism has to be reckoned with at all seriously…" Hicks's proposition echoed views expressed by Henry Fawcett 60 years earlier in response to the Newcastle Engineers strike of 1871. It also resonates unexpectedly with Sidgwick's views on the utility of combinations in managing and preserving common pool resources.
Next: Sidgwick: Commons and Combination
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