France's 35 Hour Week

France's new President has proposed that there "should be no income tax on earnings in excess of 35 hours a week." This proposal is obviously designed to get the French to work longer hours. But this proposal will cause huge compliance problems.

To understand why let's say someone was earning $10 an hour and working for 35 hours a week, making $350 a week. Further assume that they pay 50% of their income in taxes so they get to keep $175.

Now imagine that the employee and firm come to a new arrangement. The employee will start sleeping at the office and the firm will consider this office sleeping time to be work. The employee will now be paid for working 60 hours a week. The firm, however, will also cut the worker's salary to $5 an hour. The firm now pays $5(60)=$300 a week. This is less than before so the firm is better off. The worker, however, is also better off.

For his first 35 hours of work the employee makes $175 and so pays taxes of $175/2 = $87.5. The employee pays no taxes on the rest of his income. Thus, the employee's take home pay per week is $300-$87.5 = $212.5, much higher than before.

So France's new tax law, I suspect, will cause employees to pretend to work far longer hours than they really do. As a consequence, the French government is going to have to keep careful track of whether employees at work are really working rather than, say, sleeping or playing video games. The whole system is likely to prove unworkable.