A good or bad idea?

California does it again! It wants to tell businesses in the state how to do business – this time by introducing a bill that will mandate a four-day work week.

One thing that separates America’s economy from the rest of the world is the free enterprise market system, which gives corporations the freedom to hire people efficiently and effectively. It helps companies deal with changing market conditions and introduce new products and business models that improve the quantity and quality of life.

This is certainly true at the federal level, where the government is limited to addressing market failures. But not so at the state and local levels, where government has experimented with the legacy of failed socialist systems that dictate how corporations run their own businesses. For example, several states and cities across the country, most notably San Francisco and New York City, dictate how companies pay and deploy their workers.

California wants to up the game by telling companies how many days per week they will employ their workers. If passed, Act AB293 would require companies with more than 500 employees to pay overtime to people who work more than 32 hours. The law, which would reduce the workweek to four days while maintaining current wages, is expected to affect an estimated 2,600 companies and 3.6 million people out of a workforce of about 17 million.

Is that a good idea or a bad idea? Scott Miller, CEO of Centerpost Media, thinks the time is right for this idea.

“Employees now expect more work-life balance from their employers,” he says. “Despite having to bring more money home to pay for the rising cost of groceries and gas, most want the opportunity to be more at home and less in the office. Employers must also base performance reviews on results, not hours worked.”

But chief prosecutor Rita Mkrtchyan thinks the four-day work week mandate, which looks good on paper, is a bad idea that will end up killing jobs.

“The bill scares me because it has a high potential to be a job killer. It will certainly make hiring more expensive,” she said. “Indeed, increased spending will result in a drop in job vacancies. If the law is signed, employers will reduce employment through hiring freezes and layoffs. Also, large companies could move to neighboring states. This law doesn’t look sustainable and in fact trying to create a better work-life balance will drive up inflation.”

That’s the last thing a state needs these days when inflation has ravaged family budgets, especially those living paycheck to paycheck.

“Labor costs are typically one of the highest costs a company has,” explained Mkrtchyan. “Companies operate with minimal profit margins, especially during inflation. Shorter workweeks can only just work in a labor surplus environment where companies have to spread out jobs. Unfortunately, there is a labor shortage in our current economy. A shorter workweek will inevitably result in either (1) an involuntary reduction in hours, or (2) companies continue to pay employees overtime at the same rate as before, but the cost to the pass on to consumers.”

The situation could get dire for California’s restaurant and hospitality industries, which have been under separate work mandates and are scrambling to find workers to keep the doors open. “If passed, the law would force these companies to hire more workers to avoid overtime wages and allow for a shorter workweek,” Mkrtchyan adds.

Fennemore Craig attorney Marlene Allen Murray is concerned about the negative impact of another bill on the state’s heavily regulated economy.

“California businesses are already plagued by numerous limitations in how they run their businesses. Businesses are better placed than legislators to know what workweek schedules are best for their business and for serving their customers.” For this reason, Murray believes California should not place this additional burden on businesses, especially since they are in have already suffered from Covid and other challenges in recent years.”