A Four Day Week?

One of the ideas being floated at the NZ Government 'Job Summit' is a version of a four day week. Essentially, the idea would allow firms to reduce a reduce a worker's hours to fill only four days a week, and pay them accordingly. The drop in the worker's weekly salary would be matched (to the worker) by the Government. They would be required to do some community work or training on the fifth day each week.

When first informed of this idea, Ella was highly unimpressed. But her main (coherent) aversion appeared to be philosophically to the concept of Government intervention and welfare.
That topic I will not touch in this post. But I am interested in the economic consequences of what this act would be, given the circumstances of economic recession.

I see them as follows.

1. Reduced stickiness in the labour market. In the face of declining demand for their goods firms would be more likely to reduce the hours worked more gradualistically (as otherwise they would be laying off individuals). If you read the article I linked to you should get a good idea of why this is. Keep in mind that this move has received wide support among unions to date. This is more efficient in the short term, as firms will adapt more precisely to the trend in demand. Furthermore, it will reduce transaction costs of buying more labour when the recession ends.

2. A fiscal stimulus style prop to aggregate demand. Firms will scale back production. But this, to an extent, ceases any multiplier effect of this by ensuring a more constant amount of income for workers, slowing any downward spiral.

3. As people will be training in their time off (rather than looking for jobs), productivity will increase.

4. Government debt will increase by a decent amount. Not every firm will do this, but enough will for it to be a substantial fiscal burden on the Government. This is probably not unequivocally bad in a recession.

As such, I tentatively support the idea, providing it was removed when economic growth resumed.