- Email: [email protected]
The economics of flextime
95
THE ECONOMICSOF FLEXTIME LorIng Moss and ThomasD. Curtis1
Richard
The concept of flextime (F-T) work hours was introduced in the 1960%and became popular in the 1970%1121. Flextime has been used to cover a wide range of flexible work schedules which allow the employee to deviate from the standard 5-day, 9:00 A.M. to 5:00 P.M. work week without supervisor approval. Most F-T programs require all employees to be present during certain core hours, usually between 9:30 A.M. and 3:30 P.M., subject to lunch and other work breaks. Some F-T programs only allow the worker to vary starting and quitting times, but workers must work 8-hour days. Other plans allow the worker to vary the hours worked each day within the specified limits, but require a specified number of work hours in a given period. For example, the worker might be able to vary work hours as long as 40 hours are worked in each weekly period. For a more detailed description of F-T programs see Allenspach 111, Evans 131,Ronen [151, Silverstein 1161,and Swart [171. Proponents argue that F-T benefits employees, firms and society. The employee benefits since F-T allows the opportunity to adjust the work schedule to accomodate personal preferences and reduce travel time to work (see Allenspath [l] and Evans [3]). Benefits attributed to the firm include reduced tardiness, absenteeism, and the use of sick leave; increased morale, a more flopenf’ management system (Golembiewski [51); and ease of attracting employees (Evans [31). Finally, F-T is purported to be socially desirable since it reducesrush hour congestionand savesfossil fuel. This article is divided into two sections. The first section examines the theoretical response of workers to F-T. We do this because the purported gains from F-T must result from changes in employee behavior.2 For example, if employees respond by using less paid and unpaid leave then productivity increases and the firm’s average and marginal costs decrease.3 In addition, any employee preference
96
for F-T increases the supply of labor. In the short run, depending upon the relative bargaining strengths and contracts, employers may be able to get their workers to trade a portion of their money wages (or future money wage increases) for the F-T option. This would result in a wage differential between employers who adopt F-T and employers who retain rigid hours, giving the F-T employer a cost advantage. We show, however, that economic theory: 1) does not predict a decrease in absenteeism attributable to F-T, 2) does predict lower wages in the long run and 3) indicates that F-T increases the real income of some employees but reduces the real income of other employees. The second section summarizes recent F-T studies. There are many case studies documenting employee preference for F-T (see Evans [31, Fleuter 141, Swart 1171, Winett 1201). However, studies indicating productivity improvements through a reduction in absenteeism tend to be based upon management preceptions rather than on hard statistical data that analyze the impact of F-T on absenteeism (Hauser [?I). In this section we present a statistical summary of F-T on sick leave usage by Hillsborough County employees. Therefore, in this section we present the results of an original study by the authors. The results of our analysis support the theory; there is no evidence that F-T resulted in a reduction of absenteeism. 1
WORK-LJllStJRB MODEL
Two factors combine to determine the impact of F-T on the employee work-leisure decision: desired work hours and convenience of hours. An economic model of absenteeism can be developed from these two factors. Economists derive the desired number of work hours per time period, say 24 hours, assuming that employees gain utility from purchasing market goods (Xl and from leisure activities (L). To earn income (Y) the worker sells hours (H) in the labor market at a wage rate (w). The worker maximizes utility
97
u = U(L,X) subject to (1) Y = (24 - L)w = (H)w = C PiXi Where Pi represents the price of market good (Xi). The first order condition for maximization dictates that the employee substitute work hours for leisure hours until the marginal rate of substitution (MRS) of leisure for income equals the wage rate. For some workers this maximization results in a desire to work full-time at wage rate w each period. For others, the desire is to work more or less than full-time. We divide the workers into those who desire to work at least full-time and those who desire to work less than full-time at wage rate w. Workers who desire additional work hours may moonlight, but we assume that the firm will not pay them for overtime. One would expect that workers desiring less than full-time hours would maximize utility by choosing part-time employment. But, typically part-time workers receive lower wages and benefits than full-time workers, so some workers who would otherwise desire part time employment may attempt to hold a full time job at w rather than a part time job at the lower part time wage w. Figure 1 illustrates the work-leisure decision. The employee’s earnings (Y) are measured along the vertical axis and leisure time (L) is measured along the horizontal axis to a maximum of 24. Hours worked (H) are measured from the maximum hours per period toward the origin as H = 24 - L. If the firm paid a constant wage rate (w) for any number of hours worked up .to fuIl time, say 8 hours per day, then SM would represent the wage constraint. More realistically, the worker has the options of not working, working part time at wage rate w’ (where 0 < = w’ < w), or working full time at wage rate w.
The wage constraint
98
Pigura Work Lefsura
1 lhciaion
99
for a part time worker is line segement BM which has a slope equal to w’. Overall, assuming no paid overtime, the wage constraint is the discontinuous line YA BM. Since the firm offers the worker an all or nothing choice of working 8 hours for Y=8w income, the indifference curve which passes through point A determines whether the worker accepts full time or part time employment. If, at point A the MRS = w (illustrated by indifference curve If), then the worker’s optimum hours worked (H*) equals 8 hours. If, at point A, MRS < = then H* > 8 and the worker chooses full-time employment but will prefer to work (and be paid for) more than 8 hours. On the other hand, if MRS > w at point A then H* < 8. For some of these workers a portion of their indifference curve through A lies below line BM (illustrated by Ip), and these workers will choosepart time employment. For others, the indifference curve passing through A will lie above BM everywhere (illustrated by Ic) and these workers will choose a full time job. However, at wage w, these workers will prefer to work less than full time and may be expected to exhibit higher than average rates of absenteeism. The above model incorporates the simplification that the opportunity cost of leisure time (for full time workers) is always w, and that prices do not vary according to the time of day. For most workers, the opportunity cost of leisure time is not constant but varies depending upon the employment opportunities available throughout the day. For simplicity, we- assume that the value of leisure time is w during normal work time and v otherwise, where w >v = >o. For example, v might represent the wage rate earned at a second job. Allowing for two different time values implicitly recognizes that time has both a duration (number of hours worked) and a schedule (when the hours are worked) dimension. The assumption w>v
100
implies advantages to scheduling leisure activities during other than normal working hours since the opportunity cost of a leisure activity during normal working hours is greater than the opportunity cost of leisure activity during other than normal working hours. Schedule convenience would not be a factor in the work-leisure decision if the value of time was always w, since a constant w implies that the wage could be earned during any time period, if not at the current job then at some alternative job. In effect the traditional simplifying assumption of a constant w implies that workers have perfect F-T, with no core hours and no minimum work hours requirement. Absenteeism The above suggests two causes of absenteeism among workers. First, the employee may desire to work less than full time at the offered wage (MRS < w at Al.4 We term such workers chronic absentees, since they are .expected to be absent from work as they try to adjust the standard work schedule to their preferences. A second cause of absenteeism results from a schedule conflict between work and events which require the employee’s time during normal work hours. Illness is a major cause of absenteeism, but other examples include time off for education purposes or to perform personal errands. Firms would rather avoid chronic absentees, but since even full time workers are occasionally absent, a firm adhering to rigid hours will have to accept some absenteeism. Suppose the firm implicitly or explicitly (perhaps in the form of sick leave) accepts a maximum of Q hours.5 As long as hours worked are greater than 8 - Q, the firm would be willing to retain the worker as a full time employee. Absenteeism and F-T To the extent that F-T solves scheduling conflicts workers will prefer F-T for the flexibility gained. However, absenteeism may not be reduced. Typically employees who
101
have to be absent during work hours have made arrangements to make the time up. In these cases F-T will not reduce absenteeism but will institutionalize the ability to create flexible hours. Moreover, since F-T does not change the chronic absentee’s preferences, there is no incentive for these employees to reduce absenteeism unless the employer couples F-T with a decrease in Q. The employer can do so, arguing that the increased flexibility reduces the need for allowing absenteeism. For example, the employer may not tolerate tardiness (arriving after core hours begin) with F-T or may pressure employees to use F-T to make up hours lost to routine medical tasks such as medical examinations. To the extent the employer is able to reduce Q absenteeism is reduced and chronic absentees lose real income. Since the opportunity cost of leisure is greater during normal working hours, the tendency is to work during working hours and to schedule leisure activities during non-work hours. To the extent that F-T allows the employee to interchange normal working time for normal leisure time, the cost of performing leisure activities during working hours falls. The substitution effect dictates the use of F-T to rearrange the work schedule to perform more leisure activities during normal work hours. 6 Although by definition under F-T, this will not increase absenteeism, it may increase the amount of time employees are not at work during the standard working hours. Sick Leave and F-T Other things being equal, the greater the opportunity cost of missing work to the employee, the lower the tendency to miss work, the lower the opportunity cost to the employee the greater the tendency to miss work. Paid sick leave reduces the employee’s cost from reduced current wages to the expected discounted value of reduced future wages. In other words, sick leave has value to the employee as an insurance policy, protecting against the loss of future income. However, given an absence and a choice between losing present income or the possibility of losing income in the future, it is not surprising that many workers choose to
102
Fimre
2
- Work Liisure Daclrion Includirq Commutl~ Tima
I I I
\
I
\
\
F’ hisura
M
\
n’ b
Work’
103
have to be absent during work hours have made arrangements to make the time up. In these cases F-T will not reduce absenteeism but will institualize the ability to create flexible hours. Moreover, since F-T does not change the chronic absentee’s preferences, there is no incentive for these employees to reduce absenteeism unless the employer couples F-T with a decrease in Q. The employer can do so, arguing that the increased flexibility reduces the need for allowing absenteeism. For example, the employer may not tolerate tardiness (arriving after core hours begin) with F-T or may pressure employees to use F-T to make up hours lost to routine medical tasks such as medical examinations. To the extent the employer is able to reduce Q absenteeism is reduced and chronic absentees lose real income. Since the opportunity cost of leisure is greater during normal working hours, the tendency is to work during working hours and to schedule leisure activities during non-work hours. To the extent that F-T allows the employee to interchange normal working time for normal leisure time, the cost of performing leisure activities during working hours falls. The substitution effect dictates the use of F-T to rearrange the work schedule to perform more leisure activities during normal work hours. 6 Although by definition under F-T, this will not increase absenteeism, it may increase the amount of time employees are not at work during the standard working hours. Sick Leave and F-T Other things being equal, the greater the opportunity cost of missing work to the employee, the lower the tendency to miss work, the lower the opportunity cost to the employee the greater the tendency to miss work. Paid sick leave reduces the employee’s cost from reduced current wages to the expected discounted value of reduced future wages. In other words, sick leave has value to the employee as an insurance policy, protecting against the loss of future income. However, given an absence and a choice between losing Present income or the possibility to losing, income in the future, it is not surprising that many workers choose to
104
use sick leave now. The chronic absentee is likely to use sick leave to reduce hours worked, as is the full-time employee. In fact the chronic absentee probably views the use of sick leave as a low cost method of reducing the number of hours worked. Since sick leave decreases the opportunity cost of leisure time, absenteeism will be higher in firms with paid sick leave rograms than in firms without paid sick leave programs. B Certeris paribus, the introduction of F-T is unlikely to change paid sick leave use. Commuting and F-T Proponents of F-T argue that F-T will reduce travel time to work as employees adjust their work schedule to avoid rush hour traffic. If true, this results in both private and social benefits through a decrease in rush-hour congestion (more efficient use of transportation facilities, decrease in commuting time for all workers, and less pollution), a decrease in travel time for the employee, and reduced costs to the firm. To reflect time spent commuting equation (1) may be re-written as Y = (24 - L -CT) = c P X where CT represents commuting time. As shown in Figure-2, commuting imposes the equivalent of a lump sum tax (in time) on the worker, shifting the wage constraint by CT from YA BM to YA’ B’M’. Unless the marginal utility of leisure time is zero, a reduction in commuting time must increase the worker’s real income as the constraint shifts toward YA BM by an amount equal to the time saved. As long as income is a normal good a decrease in commuting time will result in a desire to work more hours per time period, since the shift is a pure real income effect. If the consumption of market goods is to increase as a result of this income effect, then the amount of hours worked must also increase. This is necessary in order to generate the income necessary to purchase the additional market goods. The full-time employee cannot make the adjustment since he/she is already supplying 8 hours per day. The de-
105
crease in commuting time will also result in a desire by part-time workers to work more hours. Therefore, in the short-run, given a positive income effect, F-T will result in less absenteeism. Unfortunately, several long-run effects may reduce or eliminate the reduction in absenteeism. As the firm hires new or replacement workers, some of the new workers may have been part-time workers under rigid hours and become chronic absentees under F-T. A long-run adjustment, which is frequently overlooked, is that workers tend to locate further away from the central city. This can be explained using the Becker 121 model and considering an activity termed home environment. A reduction in CT lowers the full cost of this activity implying a substitution into home environment in the long run. This might result in the employee moving further away from the place of employment in order to consume more housing or better living conditions. If market goods are inferior (a backward bending supply of labor), the worker’s desired amount of labor hours supplied will decrease as commuting time decreases. In this case, consumption of market goods would also decrease as a result in the decrease in money income. This would occur if there was a shift into time intensive goods and out of dollar intensive goods. Therefore, in the short run, the impact of a reduction in commuint time depends upon whether market goods are normal or inferior. In the long run time worked is only one of a number of adjustments a worker may make in response to F-T. Labor
Supply
and F-T
In addition to a reducing absenteeism and rush hour Congestion, it has been suggested that F-T makes it easier for the firm to attract employees. To the extent that F-T allows potential. employees who could not work rigid hours to enter the labor force, the supply .of laborers will increase. The increase in the supply of laborers should reduce the firm’s wage bill. In the short run institutional constraints, such as labor contracts and the minimum wage, may prevent
106
a wage reduction. Even in these cases the firms benefit since there would be a surplus of workers who desire to work for the firms and they can skim the most qualified workers. In the long run wages will fall. Currently employees who favor F-T will be (partially) compensated by the increased flexibility. Since employees who do not favor F-T, such as chronic absentees, will not be compensated for their loss of income, it appears then that F-T may transfer income from some currently employed workers to potential workers, owners of capital and consumers. lz
EhfPIR.tCALBVIDEZVCB
The empirical evidence on the impact of F-T is modest and, with one exception, deals with attitudes rather than direct measures of productivity. Golembiewski and Proehl [51 reviewed eighteen studies which focused on employee and supervisor attitudes toward F-T. Their review notes technical difficulties in most of the studies reviewed. For example, few of the studies reviewed used an experimental/ control group design, most of the studies only used a post F-T rather than a pre/post F-T sampling design, and few studies offered any statistical analysis. Golembiewski and Proehl summarized these studies as indicating positive effects on morale and a generally favorable attitude toward F-T by both employees and supervisors, but note that there was little statistical evidence to support these conclusions. More recently, researchers have studied the federal agencies which have adopted F-T. Hauser [71 reports on a field study of two federal agencies. The study focused on organizational functioning including employee satisfaction and productivity. Although the study concluded that employees used F-T (i.e. changed their work schedules), Hauser found no statistical evidence of increased job satisfaction or increased productivity. Winett and Neale 1201,report on the
impact of F-T on employee behavior in terms of time spent with family and the perceived difficulty in performing home chores and other activities. They concluded that F-T led
107
to changes which enhanced family life. A final study that sheds light on the economical effects of F-T is one recently conducted by the authors. Since others have focused on employee and supervisor attitudes, our study did not include attitudal questionnaires. Instead we analyzed bi-weekly employee payroll records for Hillsborough County, Florida employees for one year before and one year after the county adopted F-T. We were looking for evidence of F-T decreased employee use of sick leave.* To test the hypothesis that F-T results in a reduction in sick leave county departments were divided into two groups. Personnel in the Flex departments were authorized to adopt F-T while employees in the Control departments were required to work traditional rigid hours. A paired difference test was used to test the hypothesis that F-T resulted in a decrease in sick leave usage in the Flex departments with respect to the Control departments. The differences were calculated by subtracting each employee’s sick leave usage in the post F-T period from the same employee’s sick leave usage in the pre F-T period. The average difference in the sick leave use for the 71 Flex employees increased by 6.5 hours with a standard error 6.8 hours. The average difference in sick leave use for the 184 Control Control employees increased by 0.9 hours with a standard error of 4.43 hours. Neither increase was statistically significant. However, the median difference decreased for Flex departments and remained the same for the Control department. These results are ,consistent with the hypothesis that there is no change in employee behavior with respect to sick leave.g The decrease in the median for the Flex employees suggests that perhaps a long random illness included in the samples masked a change in the discretionary use of sick leave. To test for this we used a modified means, screening out all employees who used more than 100 hours of sick leave in either the pre or the post study period. The rationale was that such a large use of sick leave was probably not discretionary. Using the modified mean differences, average
108
sick leave use in Flex departments decreased by 2.4 hours with a standard error of 3.0 while average sick leave use in the control departments increased by 0.9 hours with a standard error of 2.1 hours. Again, neither the changes within each group nor the differences between the Flex and Control groups are significant. lU
CONCLUSIONS
While F-T is reported to be widespread in Europe, its adoption has been relatively slow in the U.S. Putting aside legal barriers to F-T, workers would prefer F-T if their real incomes were increased and firms would prefer F-T if their costs were reduced. Since change in the work schedule, if any, is at the discretion of the employee, it has been argued that the employee will not be any worse off and ma be better off under F-T than under standard work hours. 9 o Our model suggests that all workers do not benefit from F-T. Full-time workers may benefit but chronic absentees do not benefit. Neither of the mechanisms that F-T proponents claim will reduce absenteeism can be expected to do so. Chronic absentees will only reduce their absenteeism to the extent required to by management. And, F-T provides little or no incentive to the employee to reduce the use of sick leave. Moreover, although in the short run, as commuting time is reduced, F-T should reduce absenteeism, in the long run employee adjustments to consumption activities, such as housing, may reduce these effects. Despite the common belief that F-T reduces absenteeism, this study provides no evidence that employees use F-T to conserve sick leave. The employee who uses F-T to rearrange the work schedule to avoid rush hour or to accommodate a desire to sleep later, may be a less tardy and happier worker and perhaps a more productive worker, but he/she does not appear to reduce the use of sick leave, and by implication absenteeism. One interpretation of the results is that many employees view sick time as a “free” good which is to be used as it becomes available. The introduction of F-T did not change this. Those workers who abused sick leave before F-T, appear to have continued to do SO
109
after F-T. However, a reduction in sick leave use may be attained if F-T is coupled with strict accountability of sick leave use. This raises the cost of using sick leave while allowing employees the opportunity to conserve sick leave. Although F-T has gained only slow acceptance in the United States, more and more employers, including the federal government, have been experimenting with F-T. Flextime is one of several concepts which are purported to increase the quality of working life and increase productivity. To the extent that F-T eliminates scheduling conflicts this may be true. F-T may also lead to reduced costs via a reduction in wages or an improvement in the quality of worker the firm selects. However, despite previous claims, we see no theoretical evidence that F-T reduces absenteeism, nor did we find any empirical evidence that F-T reduces absenteeism when workers are granted paid sick leave.
110
NOTES lRichard Loring Moss is an Assistant Professor of Economics and Thomas D. Curtis is a Professor of Economics at the University of South Florida. 2An extensive list of employer advantages and disadvantages can be found in Ronen [15, cpt 61. 3An increase in productivity per paid hour obviously reduces costs; a decrease in unpaid absenteeism also decreases costs, but only if productivity (output) is increased. 4For a review of the literature which considers employee absenteeism as a form of employee withdrawal rather than as a form of optimizing the hours worked see Muchinsky
UOI. 5The maximum quantity of absenteeism accepted by an employer is usually established by a negotiated labor contract or by written rules and regulations. The rules may attempt to make it difficult for employees to take extended weekends. GAdditionally, the substitution effect will be enhanced if prices or congestion for some goods, say movie matinees, are lower during normal working hours. ‘This need not be the case provided the sick leave program imposes other costs or controls on the employee for the use of sick leave. For example see Guilmartin 161. *The County, like other government entities allows employees to accumulate sick leave without limit, but offers no payment for accumulated sick leave upon termination of employment. As noted previously, this arrangement encourages employees to use sick leave for discretionary purposes, hence sick leave becomes a proxy variable for absenteeism.
111
gA complete description of the methodology and the study results are available from the authors. loOther advantages frequently mentioned include abolition of special privileges and payment for time spent at work before or after normal hours. Disadvantages include punching a time clock and having to make up tardiness. For additional advantages and disadvantages see Allenspach [l, cpt 31 and Rone [15, cpt 21.
112
REFERENCES 1.
Allenspach, Heinz, Flexible Working Hours, Geneva: International Labor Office, 1975.
2.
Becker, Gary A., “A Theory of the Allocation of Time, Economic Journal, Vol. 75 (September 19651, pp. 493-517.
3.
Evans, Archibald A., Flexibility in Working Life: Opportunities for. Industrial Choice, Paris: Organization for Economic Cooperation and Development, 1973.
4.
Fleuter, Douglas L., The Workweek Revolution: A Guide to the Changing Workweek, Reading, MA: Addison-Wesley Publishing Company, 1975.
5.
Golembiewski, Robert T. anU Carl W. Proehl, Jr., “A Survey of the Empirical Literature on Flexible Work Hours: Character and Consequences of a Major Innovation,” Academy of Science Review, October 1978, pp. 837-853. . Guilmartin, Elmer, “Does a Liberal Paid Absence Plan Encouragre: Absenteeism?” Personnel, Vol. 10 (May 19601,pp. 70-74.
6.
7.
Hausser, Doris, “The Impact of Flextime on Organizational Functioning,I1 The Impact. of. Flextime on Organizational Functioning: A- Field Study, Washington, D.C.: Government Printing Office, 1980.
8.
Hedges, Janice Neipert and Daniel E. Taylor, “Recent Trends in Worktime: Hours Edge Downward,” Monthly Labor Review, Vol. 30, No. 3 (March 19801,pp. 3-11.
113
9.
Marie’, D., Adapting Working Hours to Modern Needs: The Time Factor in the New Approach to Working Conditions, Geneva: International Labor Office, 1977.
10.
Muchinsky, Paul M., f’Employee Absenteeism: A Review of the Literature,” Journal of Vocational Behavior, Vol. 10, No. 3 (June 19771, pp. 316-340.
11.
National
12.
Owen, John D., ffPlextme: Some Problems and Solutions,” INDUSTRIAL Industrial UCLabor Relations Review, Vol. 30, No. 2 (January 19771, pp. 152-166.
Commission for Manpower Policy, Worktime and Employment, Washington, DC.: Government Printing Office, 1978.
Working Booki, 1979.
19 A”.
Lexington, MA: Lexington
14.
Rees, Albert, “Improving Productivity Techniques,” Measurement Review, Vol. 102, No. 9 pp. 23-27.
Concepts and
15.
Ronen, Simcha, Flexible Working Hours: An Innovation in the Quality of Work Life, New York: McGraw HiII, 1981.
16.
Silverstein, Pam and Jozetta H. SRB, Flextime: Where, When and How?, Ithaca: Cornell University, 1979.
17.
Swart,
J. Carroll, A Flexible Approach Hours. New York: AMACOM. 1978.
to Working
114
Daniel E., “Absences from Work Among FullTime Employees,” Monthly Labor Review, Vol. 104, No. 3 (March 19811, pp. 68-70.
18.
Taylor,
19.
U.S.
20.
Winett,
Department of Labor Statistics, The Revised Workweek: Results of a Pilot Study of 16 Firms, Bulletin 1846, Washington, D.C.: Government Printing office, 1975. Richard A. and Michael S. Neale, “Results of Experimental Study on Flextime and Family Life, t’Monthly Labor Review, Vol. 103, No. 11 (November 19801, pp. 29-32.
THE ECONOMICSOF FLEXTIME LorIng Moss and ThomasD. Curtis1
Richard
The concept of flextime (F-T) work hours was introduced in the 1960%and became popular in the 1970%1121. Flextime has been used to cover a wide range of flexible work schedules which allow the employee to deviate from the standard 5-day, 9:00 A.M. to 5:00 P.M. work week without supervisor approval. Most F-T programs require all employees to be present during certain core hours, usually between 9:30 A.M. and 3:30 P.M., subject to lunch and other work breaks. Some F-T programs only allow the worker to vary starting and quitting times, but workers must work 8-hour days. Other plans allow the worker to vary the hours worked each day within the specified limits, but require a specified number of work hours in a given period. For example, the worker might be able to vary work hours as long as 40 hours are worked in each weekly period. For a more detailed description of F-T programs see Allenspach 111, Evans 131,Ronen [151, Silverstein 1161,and Swart [171. Proponents argue that F-T benefits employees, firms and society. The employee benefits since F-T allows the opportunity to adjust the work schedule to accomodate personal preferences and reduce travel time to work (see Allenspath [l] and Evans [3]). Benefits attributed to the firm include reduced tardiness, absenteeism, and the use of sick leave; increased morale, a more flopenf’ management system (Golembiewski [51); and ease of attracting employees (Evans [31). Finally, F-T is purported to be socially desirable since it reducesrush hour congestionand savesfossil fuel. This article is divided into two sections. The first section examines the theoretical response of workers to F-T. We do this because the purported gains from F-T must result from changes in employee behavior.2 For example, if employees respond by using less paid and unpaid leave then productivity increases and the firm’s average and marginal costs decrease.3 In addition, any employee preference
96
for F-T increases the supply of labor. In the short run, depending upon the relative bargaining strengths and contracts, employers may be able to get their workers to trade a portion of their money wages (or future money wage increases) for the F-T option. This would result in a wage differential between employers who adopt F-T and employers who retain rigid hours, giving the F-T employer a cost advantage. We show, however, that economic theory: 1) does not predict a decrease in absenteeism attributable to F-T, 2) does predict lower wages in the long run and 3) indicates that F-T increases the real income of some employees but reduces the real income of other employees. The second section summarizes recent F-T studies. There are many case studies documenting employee preference for F-T (see Evans [31, Fleuter 141, Swart 1171, Winett 1201). However, studies indicating productivity improvements through a reduction in absenteeism tend to be based upon management preceptions rather than on hard statistical data that analyze the impact of F-T on absenteeism (Hauser [?I). In this section we present a statistical summary of F-T on sick leave usage by Hillsborough County employees. Therefore, in this section we present the results of an original study by the authors. The results of our analysis support the theory; there is no evidence that F-T resulted in a reduction of absenteeism. 1
WORK-LJllStJRB MODEL
Two factors combine to determine the impact of F-T on the employee work-leisure decision: desired work hours and convenience of hours. An economic model of absenteeism can be developed from these two factors. Economists derive the desired number of work hours per time period, say 24 hours, assuming that employees gain utility from purchasing market goods (Xl and from leisure activities (L). To earn income (Y) the worker sells hours (H) in the labor market at a wage rate (w). The worker maximizes utility
97
u = U(L,X) subject to (1) Y = (24 - L)w = (H)w = C PiXi Where Pi represents the price of market good (Xi). The first order condition for maximization dictates that the employee substitute work hours for leisure hours until the marginal rate of substitution (MRS) of leisure for income equals the wage rate. For some workers this maximization results in a desire to work full-time at wage rate w each period. For others, the desire is to work more or less than full-time. We divide the workers into those who desire to work at least full-time and those who desire to work less than full-time at wage rate w. Workers who desire additional work hours may moonlight, but we assume that the firm will not pay them for overtime. One would expect that workers desiring less than full-time hours would maximize utility by choosing part-time employment. But, typically part-time workers receive lower wages and benefits than full-time workers, so some workers who would otherwise desire part time employment may attempt to hold a full time job at w rather than a part time job at the lower part time wage w. Figure 1 illustrates the work-leisure decision. The employee’s earnings (Y) are measured along the vertical axis and leisure time (L) is measured along the horizontal axis to a maximum of 24. Hours worked (H) are measured from the maximum hours per period toward the origin as H = 24 - L. If the firm paid a constant wage rate (w) for any number of hours worked up .to fuIl time, say 8 hours per day, then SM would represent the wage constraint. More realistically, the worker has the options of not working, working part time at wage rate w’ (where 0 < = w’ < w), or working full time at wage rate w.
The wage constraint
98
Pigura Work Lefsura
1 lhciaion
99
for a part time worker is line segement BM which has a slope equal to w’. Overall, assuming no paid overtime, the wage constraint is the discontinuous line YA BM. Since the firm offers the worker an all or nothing choice of working 8 hours for Y=8w income, the indifference curve which passes through point A determines whether the worker accepts full time or part time employment. If, at point A the MRS = w (illustrated by indifference curve If), then the worker’s optimum hours worked (H*) equals 8 hours. If, at point A, MRS < = then H* > 8 and the worker chooses full-time employment but will prefer to work (and be paid for) more than 8 hours. On the other hand, if MRS > w at point A then H* < 8. For some of these workers a portion of their indifference curve through A lies below line BM (illustrated by Ip), and these workers will choosepart time employment. For others, the indifference curve passing through A will lie above BM everywhere (illustrated by Ic) and these workers will choose a full time job. However, at wage w, these workers will prefer to work less than full time and may be expected to exhibit higher than average rates of absenteeism. The above model incorporates the simplification that the opportunity cost of leisure time (for full time workers) is always w, and that prices do not vary according to the time of day. For most workers, the opportunity cost of leisure time is not constant but varies depending upon the employment opportunities available throughout the day. For simplicity, we- assume that the value of leisure time is w during normal work time and v otherwise, where w >v = >o. For example, v might represent the wage rate earned at a second job. Allowing for two different time values implicitly recognizes that time has both a duration (number of hours worked) and a schedule (when the hours are worked) dimension. The assumption w>v
100
implies advantages to scheduling leisure activities during other than normal working hours since the opportunity cost of a leisure activity during normal working hours is greater than the opportunity cost of leisure activity during other than normal working hours. Schedule convenience would not be a factor in the work-leisure decision if the value of time was always w, since a constant w implies that the wage could be earned during any time period, if not at the current job then at some alternative job. In effect the traditional simplifying assumption of a constant w implies that workers have perfect F-T, with no core hours and no minimum work hours requirement. Absenteeism The above suggests two causes of absenteeism among workers. First, the employee may desire to work less than full time at the offered wage (MRS < w at Al.4 We term such workers chronic absentees, since they are .expected to be absent from work as they try to adjust the standard work schedule to their preferences. A second cause of absenteeism results from a schedule conflict between work and events which require the employee’s time during normal work hours. Illness is a major cause of absenteeism, but other examples include time off for education purposes or to perform personal errands. Firms would rather avoid chronic absentees, but since even full time workers are occasionally absent, a firm adhering to rigid hours will have to accept some absenteeism. Suppose the firm implicitly or explicitly (perhaps in the form of sick leave) accepts a maximum of Q hours.5 As long as hours worked are greater than 8 - Q, the firm would be willing to retain the worker as a full time employee. Absenteeism and F-T To the extent that F-T solves scheduling conflicts workers will prefer F-T for the flexibility gained. However, absenteeism may not be reduced. Typically employees who
101
have to be absent during work hours have made arrangements to make the time up. In these cases F-T will not reduce absenteeism but will institutionalize the ability to create flexible hours. Moreover, since F-T does not change the chronic absentee’s preferences, there is no incentive for these employees to reduce absenteeism unless the employer couples F-T with a decrease in Q. The employer can do so, arguing that the increased flexibility reduces the need for allowing absenteeism. For example, the employer may not tolerate tardiness (arriving after core hours begin) with F-T or may pressure employees to use F-T to make up hours lost to routine medical tasks such as medical examinations. To the extent the employer is able to reduce Q absenteeism is reduced and chronic absentees lose real income. Since the opportunity cost of leisure is greater during normal working hours, the tendency is to work during working hours and to schedule leisure activities during non-work hours. To the extent that F-T allows the employee to interchange normal working time for normal leisure time, the cost of performing leisure activities during working hours falls. The substitution effect dictates the use of F-T to rearrange the work schedule to perform more leisure activities during normal work hours. 6 Although by definition under F-T, this will not increase absenteeism, it may increase the amount of time employees are not at work during the standard working hours. Sick Leave and F-T Other things being equal, the greater the opportunity cost of missing work to the employee, the lower the tendency to miss work, the lower the opportunity cost to the employee the greater the tendency to miss work. Paid sick leave reduces the employee’s cost from reduced current wages to the expected discounted value of reduced future wages. In other words, sick leave has value to the employee as an insurance policy, protecting against the loss of future income. However, given an absence and a choice between losing present income or the possibility of losing income in the future, it is not surprising that many workers choose to
102
Fimre
2
- Work Liisure Daclrion Includirq Commutl~ Tima
I I I
\
I
\
\
F’ hisura
M
\
n’ b
Work’
103
have to be absent during work hours have made arrangements to make the time up. In these cases F-T will not reduce absenteeism but will institualize the ability to create flexible hours. Moreover, since F-T does not change the chronic absentee’s preferences, there is no incentive for these employees to reduce absenteeism unless the employer couples F-T with a decrease in Q. The employer can do so, arguing that the increased flexibility reduces the need for allowing absenteeism. For example, the employer may not tolerate tardiness (arriving after core hours begin) with F-T or may pressure employees to use F-T to make up hours lost to routine medical tasks such as medical examinations. To the extent the employer is able to reduce Q absenteeism is reduced and chronic absentees lose real income. Since the opportunity cost of leisure is greater during normal working hours, the tendency is to work during working hours and to schedule leisure activities during non-work hours. To the extent that F-T allows the employee to interchange normal working time for normal leisure time, the cost of performing leisure activities during working hours falls. The substitution effect dictates the use of F-T to rearrange the work schedule to perform more leisure activities during normal work hours. 6 Although by definition under F-T, this will not increase absenteeism, it may increase the amount of time employees are not at work during the standard working hours. Sick Leave and F-T Other things being equal, the greater the opportunity cost of missing work to the employee, the lower the tendency to miss work, the lower the opportunity cost to the employee the greater the tendency to miss work. Paid sick leave reduces the employee’s cost from reduced current wages to the expected discounted value of reduced future wages. In other words, sick leave has value to the employee as an insurance policy, protecting against the loss of future income. However, given an absence and a choice between losing Present income or the possibility to losing, income in the future, it is not surprising that many workers choose to
104
use sick leave now. The chronic absentee is likely to use sick leave to reduce hours worked, as is the full-time employee. In fact the chronic absentee probably views the use of sick leave as a low cost method of reducing the number of hours worked. Since sick leave decreases the opportunity cost of leisure time, absenteeism will be higher in firms with paid sick leave rograms than in firms without paid sick leave programs. B Certeris paribus, the introduction of F-T is unlikely to change paid sick leave use. Commuting and F-T Proponents of F-T argue that F-T will reduce travel time to work as employees adjust their work schedule to avoid rush hour traffic. If true, this results in both private and social benefits through a decrease in rush-hour congestion (more efficient use of transportation facilities, decrease in commuting time for all workers, and less pollution), a decrease in travel time for the employee, and reduced costs to the firm. To reflect time spent commuting equation (1) may be re-written as Y = (24 - L -CT) = c P X where CT represents commuting time. As shown in Figure-2, commuting imposes the equivalent of a lump sum tax (in time) on the worker, shifting the wage constraint by CT from YA BM to YA’ B’M’. Unless the marginal utility of leisure time is zero, a reduction in commuting time must increase the worker’s real income as the constraint shifts toward YA BM by an amount equal to the time saved. As long as income is a normal good a decrease in commuting time will result in a desire to work more hours per time period, since the shift is a pure real income effect. If the consumption of market goods is to increase as a result of this income effect, then the amount of hours worked must also increase. This is necessary in order to generate the income necessary to purchase the additional market goods. The full-time employee cannot make the adjustment since he/she is already supplying 8 hours per day. The de-
105
crease in commuting time will also result in a desire by part-time workers to work more hours. Therefore, in the short-run, given a positive income effect, F-T will result in less absenteeism. Unfortunately, several long-run effects may reduce or eliminate the reduction in absenteeism. As the firm hires new or replacement workers, some of the new workers may have been part-time workers under rigid hours and become chronic absentees under F-T. A long-run adjustment, which is frequently overlooked, is that workers tend to locate further away from the central city. This can be explained using the Becker 121 model and considering an activity termed home environment. A reduction in CT lowers the full cost of this activity implying a substitution into home environment in the long run. This might result in the employee moving further away from the place of employment in order to consume more housing or better living conditions. If market goods are inferior (a backward bending supply of labor), the worker’s desired amount of labor hours supplied will decrease as commuting time decreases. In this case, consumption of market goods would also decrease as a result in the decrease in money income. This would occur if there was a shift into time intensive goods and out of dollar intensive goods. Therefore, in the short run, the impact of a reduction in commuint time depends upon whether market goods are normal or inferior. In the long run time worked is only one of a number of adjustments a worker may make in response to F-T. Labor
Supply
and F-T
In addition to a reducing absenteeism and rush hour Congestion, it has been suggested that F-T makes it easier for the firm to attract employees. To the extent that F-T allows potential. employees who could not work rigid hours to enter the labor force, the supply .of laborers will increase. The increase in the supply of laborers should reduce the firm’s wage bill. In the short run institutional constraints, such as labor contracts and the minimum wage, may prevent
106
a wage reduction. Even in these cases the firms benefit since there would be a surplus of workers who desire to work for the firms and they can skim the most qualified workers. In the long run wages will fall. Currently employees who favor F-T will be (partially) compensated by the increased flexibility. Since employees who do not favor F-T, such as chronic absentees, will not be compensated for their loss of income, it appears then that F-T may transfer income from some currently employed workers to potential workers, owners of capital and consumers. lz
EhfPIR.tCALBVIDEZVCB
The empirical evidence on the impact of F-T is modest and, with one exception, deals with attitudes rather than direct measures of productivity. Golembiewski and Proehl [51 reviewed eighteen studies which focused on employee and supervisor attitudes toward F-T. Their review notes technical difficulties in most of the studies reviewed. For example, few of the studies reviewed used an experimental/ control group design, most of the studies only used a post F-T rather than a pre/post F-T sampling design, and few studies offered any statistical analysis. Golembiewski and Proehl summarized these studies as indicating positive effects on morale and a generally favorable attitude toward F-T by both employees and supervisors, but note that there was little statistical evidence to support these conclusions. More recently, researchers have studied the federal agencies which have adopted F-T. Hauser [71 reports on a field study of two federal agencies. The study focused on organizational functioning including employee satisfaction and productivity. Although the study concluded that employees used F-T (i.e. changed their work schedules), Hauser found no statistical evidence of increased job satisfaction or increased productivity. Winett and Neale 1201,report on the
impact of F-T on employee behavior in terms of time spent with family and the perceived difficulty in performing home chores and other activities. They concluded that F-T led
107
to changes which enhanced family life. A final study that sheds light on the economical effects of F-T is one recently conducted by the authors. Since others have focused on employee and supervisor attitudes, our study did not include attitudal questionnaires. Instead we analyzed bi-weekly employee payroll records for Hillsborough County, Florida employees for one year before and one year after the county adopted F-T. We were looking for evidence of F-T decreased employee use of sick leave.* To test the hypothesis that F-T results in a reduction in sick leave county departments were divided into two groups. Personnel in the Flex departments were authorized to adopt F-T while employees in the Control departments were required to work traditional rigid hours. A paired difference test was used to test the hypothesis that F-T resulted in a decrease in sick leave usage in the Flex departments with respect to the Control departments. The differences were calculated by subtracting each employee’s sick leave usage in the post F-T period from the same employee’s sick leave usage in the pre F-T period. The average difference in the sick leave use for the 71 Flex employees increased by 6.5 hours with a standard error 6.8 hours. The average difference in sick leave use for the 184 Control Control employees increased by 0.9 hours with a standard error of 4.43 hours. Neither increase was statistically significant. However, the median difference decreased for Flex departments and remained the same for the Control department. These results are ,consistent with the hypothesis that there is no change in employee behavior with respect to sick leave.g The decrease in the median for the Flex employees suggests that perhaps a long random illness included in the samples masked a change in the discretionary use of sick leave. To test for this we used a modified means, screening out all employees who used more than 100 hours of sick leave in either the pre or the post study period. The rationale was that such a large use of sick leave was probably not discretionary. Using the modified mean differences, average
108
sick leave use in Flex departments decreased by 2.4 hours with a standard error of 3.0 while average sick leave use in the control departments increased by 0.9 hours with a standard error of 2.1 hours. Again, neither the changes within each group nor the differences between the Flex and Control groups are significant. lU
CONCLUSIONS
While F-T is reported to be widespread in Europe, its adoption has been relatively slow in the U.S. Putting aside legal barriers to F-T, workers would prefer F-T if their real incomes were increased and firms would prefer F-T if their costs were reduced. Since change in the work schedule, if any, is at the discretion of the employee, it has been argued that the employee will not be any worse off and ma be better off under F-T than under standard work hours. 9 o Our model suggests that all workers do not benefit from F-T. Full-time workers may benefit but chronic absentees do not benefit. Neither of the mechanisms that F-T proponents claim will reduce absenteeism can be expected to do so. Chronic absentees will only reduce their absenteeism to the extent required to by management. And, F-T provides little or no incentive to the employee to reduce the use of sick leave. Moreover, although in the short run, as commuting time is reduced, F-T should reduce absenteeism, in the long run employee adjustments to consumption activities, such as housing, may reduce these effects. Despite the common belief that F-T reduces absenteeism, this study provides no evidence that employees use F-T to conserve sick leave. The employee who uses F-T to rearrange the work schedule to avoid rush hour or to accommodate a desire to sleep later, may be a less tardy and happier worker and perhaps a more productive worker, but he/she does not appear to reduce the use of sick leave, and by implication absenteeism. One interpretation of the results is that many employees view sick time as a “free” good which is to be used as it becomes available. The introduction of F-T did not change this. Those workers who abused sick leave before F-T, appear to have continued to do SO
109
after F-T. However, a reduction in sick leave use may be attained if F-T is coupled with strict accountability of sick leave use. This raises the cost of using sick leave while allowing employees the opportunity to conserve sick leave. Although F-T has gained only slow acceptance in the United States, more and more employers, including the federal government, have been experimenting with F-T. Flextime is one of several concepts which are purported to increase the quality of working life and increase productivity. To the extent that F-T eliminates scheduling conflicts this may be true. F-T may also lead to reduced costs via a reduction in wages or an improvement in the quality of worker the firm selects. However, despite previous claims, we see no theoretical evidence that F-T reduces absenteeism, nor did we find any empirical evidence that F-T reduces absenteeism when workers are granted paid sick leave.
110
NOTES lRichard Loring Moss is an Assistant Professor of Economics and Thomas D. Curtis is a Professor of Economics at the University of South Florida. 2An extensive list of employer advantages and disadvantages can be found in Ronen [15, cpt 61. 3An increase in productivity per paid hour obviously reduces costs; a decrease in unpaid absenteeism also decreases costs, but only if productivity (output) is increased. 4For a review of the literature which considers employee absenteeism as a form of employee withdrawal rather than as a form of optimizing the hours worked see Muchinsky
UOI. 5The maximum quantity of absenteeism accepted by an employer is usually established by a negotiated labor contract or by written rules and regulations. The rules may attempt to make it difficult for employees to take extended weekends. GAdditionally, the substitution effect will be enhanced if prices or congestion for some goods, say movie matinees, are lower during normal working hours. ‘This need not be the case provided the sick leave program imposes other costs or controls on the employee for the use of sick leave. For example see Guilmartin 161. *The County, like other government entities allows employees to accumulate sick leave without limit, but offers no payment for accumulated sick leave upon termination of employment. As noted previously, this arrangement encourages employees to use sick leave for discretionary purposes, hence sick leave becomes a proxy variable for absenteeism.
111
gA complete description of the methodology and the study results are available from the authors. loOther advantages frequently mentioned include abolition of special privileges and payment for time spent at work before or after normal hours. Disadvantages include punching a time clock and having to make up tardiness. For additional advantages and disadvantages see Allenspach [l, cpt 31 and Rone [15, cpt 21.
112
REFERENCES 1.
Allenspach, Heinz, Flexible Working Hours, Geneva: International Labor Office, 1975.
2.
Becker, Gary A., “A Theory of the Allocation of Time, Economic Journal, Vol. 75 (September 19651, pp. 493-517.
3.
Evans, Archibald A., Flexibility in Working Life: Opportunities for. Industrial Choice, Paris: Organization for Economic Cooperation and Development, 1973.
4.
Fleuter, Douglas L., The Workweek Revolution: A Guide to the Changing Workweek, Reading, MA: Addison-Wesley Publishing Company, 1975.
5.
Golembiewski, Robert T. anU Carl W. Proehl, Jr., “A Survey of the Empirical Literature on Flexible Work Hours: Character and Consequences of a Major Innovation,” Academy of Science Review, October 1978, pp. 837-853. . Guilmartin, Elmer, “Does a Liberal Paid Absence Plan Encouragre: Absenteeism?” Personnel, Vol. 10 (May 19601,pp. 70-74.
6.
7.
Hausser, Doris, “The Impact of Flextime on Organizational Functioning,I1 The Impact. of. Flextime on Organizational Functioning: A- Field Study, Washington, D.C.: Government Printing Office, 1980.
8.
Hedges, Janice Neipert and Daniel E. Taylor, “Recent Trends in Worktime: Hours Edge Downward,” Monthly Labor Review, Vol. 30, No. 3 (March 19801,pp. 3-11.
113
9.
Marie’, D., Adapting Working Hours to Modern Needs: The Time Factor in the New Approach to Working Conditions, Geneva: International Labor Office, 1977.
10.
Muchinsky, Paul M., f’Employee Absenteeism: A Review of the Literature,” Journal of Vocational Behavior, Vol. 10, No. 3 (June 19771, pp. 316-340.
11.
National
12.
Owen, John D., ffPlextme: Some Problems and Solutions,” INDUSTRIAL Industrial UCLabor Relations Review, Vol. 30, No. 2 (January 19771, pp. 152-166.
Commission for Manpower Policy, Worktime and Employment, Washington, DC.: Government Printing Office, 1978.
Working Booki, 1979.
19 A”.
Lexington, MA: Lexington
14.
Rees, Albert, “Improving Productivity Techniques,” Measurement Review, Vol. 102, No. 9 pp. 23-27.
Concepts and
15.
Ronen, Simcha, Flexible Working Hours: An Innovation in the Quality of Work Life, New York: McGraw HiII, 1981.
16.
Silverstein, Pam and Jozetta H. SRB, Flextime: Where, When and How?, Ithaca: Cornell University, 1979.
17.
Swart,
J. Carroll, A Flexible Approach Hours. New York: AMACOM. 1978.
to Working
114
Daniel E., “Absences from Work Among FullTime Employees,” Monthly Labor Review, Vol. 104, No. 3 (March 19811, pp. 68-70.
18.
Taylor,
19.
U.S.
20.
Winett,
Department of Labor Statistics, The Revised Workweek: Results of a Pilot Study of 16 Firms, Bulletin 1846, Washington, D.C.: Government Printing office, 1975. Richard A. and Michael S. Neale, “Results of Experimental Study on Flextime and Family Life, t’Monthly Labor Review, Vol. 103, No. 11 (November 19801, pp. 29-32.