France’s decision effectively abolishing its 35-hour workweek by allowing employers to increase working hours – and pay – marks a reversal of a decades-old trend. In the 1980’s and 1990’s, most European countries reduced working hours: Germany went from more than 40 to 38 per week, the UK from 40 to 37, Denmark from 39 to 37, and France from 40 to 35. Today, however, as Europeans struggle with high unemployment and stagnating living standards, they may have to work longer to cope with globalization.

The French actions follow changes in Germany, where some recent wage settlements resulted in longer working times. The difference between the two countries is that, in Germany, working times were increased without compensating pay increases.

Siemens was the forerunner, going from 35 to 40 hours per week. Bavaria’s government increased the workweek from 38.5 to 40 hours for older employees and to 42 hours for younger employees. When Daimler-Chrysler increased work hours from 35 to 40 hours in its research and development center, the dam broke and other bargaining agreements fell into line.

Germany primarily reacted to low-wage competition from ex-communist countries. Currently, the average wage of the ten countries that joined the EU in May 2004 is about one-seventh of the West German wage level, and the Chinese wage is one twenty-fifth.

Those differences are so huge that some people consider efforts to compete futile. But, as productivity is much higher in Germany, an effective reduction of hourly labor costs by uncompensated increases in working hours seems worth trying. This could be an example for other European countries. The next step for France could be unpaid increases in working times.

Trade union opposition to extending working hours is based on the “lump-of-labor” theory. According to this view, there are no economic advantages of such a policy, because the total amount of labor in the economy is fixed. As a result, a 10% increase in working time will merely reduce employment by 10% percent.

Despite its seeming plausibility, this view is wrong. Working longer for the same pay is a useful way of making Europe more competitive, and, when compared to reducing wages, it imposes a much lighter burden on workers and employees.

Working longer will boost economic growth, for if people work longer, then so does capital. Except for where all 24 hours of the day are filled with shift work, increasing the daily working time of people extends daily capital utilization. Thus, a 10% increase in working time is the same as if the economy’s stock of productive capital were increased by 10%. There is a jump in wealth and an immediate production boom.

The lump-of-labor theory assumes that working longer and employing more people is the same thing. But they are very different. Longer working time can be achieved nearly instantaneously, whereas employing more people is time consuming and expensive, as it typically requires new physical investment. Working longer is thus the ideal way to achieve growth and competitiveness.

In fact, extending daily working times will, in the medium term, also result in higher employment, because it will increase productivity while labor costs remain constant. Some workers whose productivity was too low to cover their cost will now be hired, as firms will find it worthwhile to expand output above the level resulting from the increased working time itself by investing more capital and hiring more workers.

Some fear that extending the workday will not produce more jobs because the resulting expansion of hours worked will reduce the capital-labor ratio. This would lower the marginal productivity of hours worked sufficiently to offset the positive effects of increasing the number of hours per worker.

But, again, capital would also work longer. Because of the “capital utilization effect,” the capital-labor ratio would not, in fact, decline, and hence there would be no significant effect on the marginal productivity of hours worked. The theoretical effect on employment is unambiguously positive, because marginal workers will be more productive as they work longer.

Would there be enough demand to absorb the additional output resulting from increasing the workday? Advocates of the lump-of-labor view say no. But as more goods are produced while the wage per worker is fixed, profits increase by exactly the same amount as the value of output does.

Thus, in principle, the purchasing power for the extra output would be available. The entrepreneur might buy his wife a new fur coat or his workers a new production plant. If all firms work longer, most will experience more demand, and the average firm will face as much extra demand as it provides extra supply.

True, some extra demand will go abroad, but so will some of the extra supply. A slight devaluation would solve any remaining problem with export demand. This could be an explicit devaluation or an implicit one due to a price reduction, made possible by the reduction in unit production costs resulting from the extra working time at constant pay.

The argument that working longer destroys jobs and that we need technological progress in order to become more competitive and maintain employment is inherently inconsistent, because working longer is nearly the same as technological progress that makes capital and labor more productive. Either one or the other view is correct, but both cannot be true simultaneously. In any case, only the second interpretation is correct. The fear that extending the workday will damage employment is unfounded. It is a tried and true path towards growth, competitiveness and employment.