Does Hong Kong Work Too Much?

November 3, 2004

Does Hong Kong Work Too Much?
by Marian L. Tupy

Marian L. Tupy is assistant director of the Project on Global Economic Liberty at the Cato Institute.

Would forbidding people from working create more jobs and more wealth? Some members of the Hong Kong legislative assembly think so. They have proposed a law that would shorten the workweek and limit the time that the people of Hong Kong would be allowed to work. Economic logic and experience show that the proposal will fail.

The proposal before the legislators rests on a misunderstanding that economists call "the lump of labor fallacy." That fallacy holds that the amount of work to be done is constant. When productivity increases, the overall amount of available work declines and people lose their jobs. The remedy proposed is to spread that limited amount of work around. By that logic, discovery of any labor-saving device, ranging from the plough to the personal computer, eliminated work and killed jobs, thus worsening, rather than improving, human lives.

That view is clearly absurd. The loss of agricultural jobs, because of mechanization, did not result in mass unemployment. Two hundred years ago, the vast majority of Americans were farmers. Today, only 1.5 percent of the American workforce is employed in agriculture, yet they produce enough food to satisfy domestic consumption and exports to overseas. What happened to all the "lost" jobs? Workers whose labor was no longer needed in the agricultural sector found new jobs in the burgeoning industrial sector. When mechanization made the industrial sector more productive, people moved to the service sector to create yet more value. Most recently, entirely new industries and millions of new jobs were created as a result of the high-tech revolution.

In reality, the overall amount of work to be done depends on our ever-expanding needs, and the people and resources available to do the work. Because our needs are infinite, so is the amount of work that needs to be done. As long as people long for higher standard of living and the goods and services that make improvements in their lives possible, humanity will not "run out of work."

Unfortunately, some politicians occasionally put economic logic aside. For example, in 1998, the French government, under the leadership of socialist Prime Minister Lionel Jospin, introduced a law that prohibited people from working more than 35 hours per week. According to the Economist magazine, Jospin himself thought that the law was a mistake, but he went ahead with it anyway in order to preserve the cohesion of his coalition government. The result?

Mr Jospin's law increased the cost of doing business in France. People who work less produce less, and therefore they see their incomes fall. The French government, however, declared that employers could not respond to the shortened workweek by reducing the incomes of their employees. As a consequence, employers redefined the "workweek." Coffee breaks, lunch breaks, and other rest periods are now being excluded from working-time sums. Another unintended consequence of a shorter workweek is wage stagnation. As for the unemployment figures, six years after the law was passed, French unemployment continues to hover at around 10 percent. The failure of the legislation is now widely acknowledged. In October 2003, the French finance minister Francis Mer stated, "Fundamentally the 35-hour week was bad for our country."

Western European labor markets are quite restrictive. In comparison to Hong Kong, France, Germany and Italy are plagued by significantly higher unemployment. When unemployment rose in Hong Kong, the government refrained from restricting the labor market. Without government interference, Hong Kong's economy saw unemployment decline from a high of 8.7 percent in May 2003 to 6.8 percent last month. In just 16 months, Hong Kong's unemployment fell by 22 percent. Between 1994 and 2003, the average annual unemployment rate in Hong Kong was 4.6 percent. Over the same time period, the average unemployment rate in France was 10.3 percent. As the Organization for Economic Cooperation and Development (OECD) stated, "the empirical evidence points to a clear correlation between high levels of job protection and high levels of unemployment."

Despite having a small territory and no natural resources, Hong Kong is one of the most prosperous places on Earth. In 2003, Hong Kong's per capita income was higher than that of France. Hong Kong achieved that result because of the enterprising spirit of its people and a free economy. It is important that Hong Kong retains a high degree of economic freedom and rejects proposals that would erode the flexibility of its labor market.

This article was published in Apple Daily, October 28, 2004.