Something to Think About
Economic output is determined by productivity per worker-hour and the total number of hours worked. Normally, then, increases in productivity have led to increases in output. But we were, as a society, well above subsistence levels in 1988. In principle, the past twenty years worth of increases in productivity could have resulted in flat output but decreased hours worked. That could be in the form of a lot of unemployment, with the unemployed provided some fairly generous welfare payments or else everyone just having longer vacations or retiring earlier or any combination of such measures.
Obviously, that’s not what happened. But isn’t it something that could happen in the future? Isn’t it even likely to happen, as average wealth levels increase and therefore the marginal utility of additional wealth declines? That’s not to say that people will sit around doing nothing all day, but maybe we’ll see tons and tons of hobby pursuits — people retiring at 50 and putting in five hours a day on their unpaid blog.
And speaking of unpaid blogging, tell Brad DeLong I expect answers to these questions.
56 Responses to “Something to Think About”
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December 6th, 2008 at 12:32 pm
Well, retiring at 50 is what I plan to do. Or something a little higher than 50 if the market ever recovers. My mother retired at 58 or so after some wise investing. Now, she knits and watches her stocks lose value. Heck, even my grandparents retired early because my grandfather was a saver.
My inlaws also retired in their 50s and then started a vending business for a little extra money.
Also, finding a job in your 50s and 60s is not easy.
December 6th, 2008 at 12:33 pm
Obviously, that’s not what happened…maybe we’ll see tons and tons of hobby pursuits — people retiring at 50 and putting in five hours a day on their unpaid blog.
Well it’s a difficult thing to measure, right? My sense is people in aggregate enter the workforce later than in previous times. They also live many years longer after retirement.
It’s also possible people take more breaks during the workday and/or that the traditional measures of “hours worked” aren’t well suited to this day and age of telecommuting, personal email and IM, and blogging.
December 6th, 2008 at 12:34 pm
(Requires a subscription to the Economist)
This point is the very same one made in the article. While Europe has similar levels of productivity to the US, they prioritize leisure higher than do Americans, therefore, per capita GDP is slightly lower.
December 6th, 2008 at 12:35 pm
You would have to defy human nature. Wealth is relative, and it’s always defined upwards. That’s what progress is — we keep on striving.
December 6th, 2008 at 12:41 pm
Nathan and Drew are kinda contradicting each other. More specifically, the European example cited by Drew ought to complicate Nathan’s confidence in “human nature.”
Sure, we’re status-seeking animals. But markets can be constructed to maximize or moderate that aspect of human behavior. One of the reasons high levels of economic inequality are a bad thing is that inequality tends to fuel status-driven overconsumption.
December 6th, 2008 at 12:53 pm
“That could be in the form of a lot of unemployment, with the unemployed provided some fairly generous welfare payments or else everyone just having longer vacations or retiring earlier or any combination of such measures.”
I would prefer to spread the work around by lowering the retirement age and providing for mandated paid holidays (something that Americans uniquely do not have), reducing the number of hours worked during the year (Americans work way more hours than any other industrialized nation) and the like. Unemployment, even comfortably supported unemployment, has a negative effect on people’s psyche – they often feel unwanted, unneeded, useless, etc. – and deteriorates skills.
Contrarily, vacation and fewer hours worked actually improves people’s happiness and their productivity.
December 6th, 2008 at 1:28 pm
We won’t get fewer hours absent government intervention because labor is decreasingly fungible. So the returns of hiring a new person decrease vs. making current employees work more.
More detail in response to MY’s question on my blog.
December 6th, 2008 at 1:28 pm
“Obviously, that’s not what happened.”
Well, at least in part, that is actually what happened.
Leisure hours have been increasing for both men and women decade by decade since the Industrial Revolution. Yes, even in recent decades.
It’s slightly hidden because most of the time people only look at paid working hours. But we all also put in time in unpaid work in the house. Cleaning, cooking, clearing the gutters, mowing the lawn, whatever. When you look at both sets of working hours then it’s very clear that leisure hours have increased.
So people are taking some part of that increased wealth brought about by higher productivity as leisure. They’re also taking some part of it in higher material living standards.
The point above about later entry into the workforce and longer retirements is also true….but leisure hours have increased by 4-8 hours a week (depends who you believe) for both men and women in recent decades. This effect is over and above that length in years of time in the workforce.
One of the Fed Reserve Banks put out a paper on this in the last 12 months sometime.
December 6th, 2008 at 1:35 pm
I’ve sometimes pondered these questions.
But I think it’s in our DNA (especially in America) to find a way to work regardless of our circumstances. If Yglesias was suddenly fired and was banned from taking another job in the media, I’m sure he would find productive work in some other field.
December 6th, 2008 at 1:45 pm
Re: Unemployment, even comfortably supported unemployment, has a negative effect on people’s psyche – they often feel unwanted, unneeded, useless, etc. – and deteriorates skills.
Also, people who are working deeply resent being taxed to support strangers. Hence the hatred for welfare in the US. They will however assent to having their tax money support family members (as through Social Security) especially since they know they’re in line for the same deal eventually.
I really think Matt has touched on something very profound here though. The fundamental economic problem the world faces today isn’t debt or housing or peak oil. It’s overcapacity: we don’t need as many workers as we have able-bodied adults. But since the only viable (on a mass scale) way of distributing income to people is through wages, we are left with the problem of what to do with the excess workforce. In an ideal world the most efficient answer would be for the more productive people to work while the less productive people did not. But that doesn’t fly because, as noted above, people resent supporting “lazy” strangers. So we create various make-work schemes, most recently the housing bubble, which then fizzle out, sometimes dramatically.
The only solution I can see is indeed to reduce the working day and force employers to hire more people– and accept that those extra workers will not be top-of-the-line in productivity. In other words, reduce work and reduce (somewhat) productivity.
December 6th, 2008 at 1:50 pm
Marketing and the media conspire to make Americans feel dissatisfied at all times. In the world of advertisement and television, people are made happy by using products, and manufactured desires are conflated with needs. It is in the interest of corporations that Americans consume to the limits of their incomes and beyond.
December 6th, 2008 at 1:55 pm
JonF:
As I noted in my blog, there are better ways that hours regulations to reduce average hours works. In particular, reducing the fixed cost of each employee, which reduces the incentive to squeeze as many hours as possible from current employees to avoid having to pay more fixed costs for new employees. A way to reduce fixed costs is to have the government provide benefits such as health insurance.
Taxes might need to go up to cover this, but taxes are a marginal cost on labor.
December 6th, 2008 at 2:00 pm
This is what Europe decided to do. Here in America we decided not to. After all, all this increased material wealth has made everyone much happier than getting 4-8 weeks of vacation possibly could.
Unfortunately, it requires some form of government intervention. One can’t unilaterally decide to work less, unless one is very wealthy/possesses some valuable unique skill, and still expect to live in a decent place and all that goes with it. Race to the bottom, and all that.
December 6th, 2008 at 2:07 pm
Matt: This was the exact scenario John Maynard Keynes looked forward to in the “Economic Possibilities of our Grandchildren.”
December 6th, 2008 at 2:28 pm
I wonder if there’s going to be a big issue with Baumol’s cost disease, since certain labor intensive activities are going to remain essential. If it were just a matter of providing a constant level of manufactured goods, that would require very little work, but things like health insurance and education are just getting more and more expensive.
Even certain tangible goods might be affected–are houses really that much more affordable relative to median income than they were in the past? (I’m not clear about that one).
Also, a big problem with working lower average hours is that if overhead stays high, you get a situation where some people work many hours and are rich, while others work very little and are poor. To some extent, it seems as if a few of the European social democracies have this circumstance, but blunted by their extensive social programs.
December 6th, 2008 at 2:30 pm
A lot of being able to fulfull “I’ll work less and pursue some hobbies” relies on growth in the service sectors (and, in some cases, manufacturing sectors) that support all that hobby activity. “Pursue a hobby” rarely means “I’ll stand under a tree all day, then go to bed.” So some of the “I’ll work less” translates into changes in the distribution of job activity — more service employment, for example, which often doesn’t pay well enough to allow much productivity-based goofing off.
There’s a largely market oriented and “more stuff is better” take on the productivity issue in the 2003 annual report of the Dallas Fed — see the interesting chart of workforce distribution over time (Agriculture, Manufacturing and Services — bear in mind that some Manufacturing provides capital substitutes for no longer used low productivity labor inputs in agriculture, and some Service activity provides the education and information used to improve Manufacturing and Agriculture). p://www.dallasfed.org/fed/annual/2003/ar03.pdf
December 6th, 2008 at 2:31 pm
sorry, of course the link should be http://www.dallasfed.org/fed/annual/2003/ar03.pdf
December 6th, 2008 at 2:42 pm
JonF:
“Also, people who are working deeply resent being taxed to support strangers. Hence the hatred for welfare in the US. They will however assent to having their tax money support family members (as through Social Security) especially since they know they’re in line for the same deal eventually.”
Jon, I think that has more to do with the social contract behind a welfare system, since the same polls that show a hatred for welfare show a desire to spend more money on assistance for poor people – the point is that welfare is seen as a non-legitimate form of assistance, whereas something like Social Security is seen as legitimate.
This is one of the reasons why Americans have historically favored public employment programs as a form of welfare, because the program has more positive associations: people who work believe that work is important, so see work programs as an example of people “earning an honest day’s pay for an honest day’s work,” people who are tax-conscious see it as getting a return on their tax dollars, and so on. The underlying idea is that public workers become part of the “family,” both because people can easily internalize the idea they’ll be in line for support (if I ever lose my job, there’ll be a job waiting for me), and because the work is flowing into the commonwealth, so they get things they like.
December 6th, 2008 at 2:52 pm
On a related note, why is GDP the metric of interest, not GDP_per_person, and maybe GDP/WP (per working person). These are more sensitive an useful. After all, would you rather be in a place with a 10% population growth rate and 8% GDP increase, or a place with 2% growth and a -2% population growth rate? The latter is much more like Europe, and that isn’t a bad life.
In any case, I think what you note is happening, but average household hours in the US are up so remarkably in the last 30 years. We live very different lives, and many are not necessarily better
December 6th, 2008 at 3:07 pm
Matt: This post is really funny because I was actually about to e-mail you yesterday to suggest the very topic.
We’re in a post-scarcity world, baby, bring on the social credit.
December 6th, 2008 at 3:10 pm
“Matt: This was the exact scenario John Maynard Keynes looked forward to in the “Economic Possibilities of our Grandchildren.””
I also think it is a large part of what the General Theory is about, supported by a more rigorous structure and argumentation.
A very high “Marginal Propensity to Consume” is required for sustainable growth capitalism, but really ain’t natural. Liberalism & capitalism needs virtually everyone to act like a risk-taking entrepeneur, but people get scared or lazy or tribal or just fed up and the system fails. A secure permanent continuous source of demand is required…gov’t.
December 6th, 2008 at 3:14 pm
“We’re in a post-scarcity world, baby, bring on the social credit.”
The arcane and scholastic sterility of the Post-WWII intelligentsia, compared with the fecundity of the previous generations, is a mystery. Or not.
December 6th, 2008 at 3:23 pm
Bring on the 20 hour work week, says I.
December 6th, 2008 at 3:36 pm
It’s a shame that Harvard isn’t teaching Bertrand Russell.
In Praise of Idleness: http://www.zpub.com/notes/idle.html
December 6th, 2008 at 3:37 pm
I wonder if there’s going to be a big issue with Baumol’s cost disease, since certain labor intensive activities are going to remain essential.
That’s why God invented robots
http://tinyurl.com/586u8u
AND
Old Glory Insurance
http://www.broadcaster.com/clip/12913
December 6th, 2008 at 3:41 pm
I would like to see that world, but I think it unlikely: people not afraid of a boss, or of penury, are much harder to control—I believe that it was a Rand Corp. study that “blamed” (in some eyes) prosperity for the ‘Sixties, loosely construed.
Find someone bad-mouthing idleness and you will find either one who hates their job and doesn’t want anyone else having it amy better, or a preacher, a headmaster, or some other species of Boss with the wit to know that people not cowed by fear act as if they had “rights”.
Fear is the health of Authority.
December 6th, 2008 at 3:45 pm
As long as we have $trillions+ of national debt to pay down, the idea that we’ll get to increase our free time is inconceivable. Certainly starting a land war in Asia didn’t help. At some point, the Chinese lending window is going to close and we’re going to need to (a) work harder in the same hours (higher productivity), (b) lengthen our workweek, (c) postpone retirement, or (d) accept a lower standard of living.
Of course there’s disruption required to get there (job losses and other adjustments). Those Lafferites who think we can curve our way to prosperity are really claiming higher productivity, which falls under (a). Those who are resigned to inflating our way out of this mess belong to (d), since inflation will bump up the price of imported good.
December 6th, 2008 at 3:51 pm
“we’re going to need to (a) work harder in the same hours (higher productivity)”
Working ‘harder’ and being more productive are not the same. There is a limited and relatively fixed amount of additional productivity that can be squeezed out of people through working them harder.
December 6th, 2008 at 3:57 pm
Re: In particular, reducing the fixed cost of each employee, which reduces the incentive to squeeze as many hours as possible from current employees to avoid having to pay more fixed costs for new employees. A way to reduce fixed costs is to have the government provide benefits such as health insurance.
What you are missing is the fact that for an awful lot of workers their entire compensation is a fixed cost, because they are paid salary not hourly. Hence employers can squeeze extra working hours out of them without incurring any extra cost.
Re: This is what Europe decided to do.
And it hasn’t worked, at least if the goal is to sop up the excess workers. I realize that people claim comparisons of unemployment rates across countries are apples to oranges, but European unemployment rates are far from nominal, indicating the Europe has not solved the overcapacity problem.
Re: the point is that welfare is seen as a non-legitimate form of assistance, whereas something like Social Security is seen as legitimate.
Yes, because most people have family mnembers who are receive Social Security and because they know they will receive it themselves, given a normal life span. That Social Security is a consequence of growing old (and not of stupidity, laziness, failure etc) and that almost everyone gets it eventually is what creates the high level of support of Social Security.
Note the unemplpoyment insurance is also seen as legitimate because most people have known family members or friends who have gotten it (or may have gotten it themselves) and because it is derived from working and because job loss is usually seen as not the worker’s own fault.
December 6th, 2008 at 4:51 pm
Matt’s economics is plain wrong here. No, it’s not likely to happen. It happened in Europe because of political, not economic decisions. It happened because the left and labor actually had some influence.
Gains in productivity that come from mergers and consequent reduction in staffing aren’t the same as decisions of decently paid labor to work less. They’re gains that accrue to those with power, and they increase income disparities. The same beneficiaries have no reason to discourage a decrease in output or an increase in vacation time and Europe’s longer paid vacations or better sick care.
And those predictions of what ought to have happened are exactly what did happen over the last 30 years. Hey, did Matt even look at his own chart of employment during the Bush administration? He can be very good on economics, but he does not always think before writing.
December 6th, 2008 at 4:58 pm
Few productivity gains come from “mergers and consequent reduction in staffing.” Productivity gains come from innovation and investment in physical and human capital. Big rounds of productivity improvement come from what Schumpeter called “creative destruction.” Mergers, etc are signs of consolidation, not innovation.
December 6th, 2008 at 5:24 pm
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December 6th, 2008 at 5:32 pm
To make a somewhat transhumanist comment, I think that it is entirely possible to have vastly less work (or even zero work) without an effort effort to trade GDP for leisure. In capitalism, not all resources are necessarily used. Ice is scarce, in the sense that people are willing to spend money for bags of it, but there’s tons of ice that just sits around unused without people going in and digging it up, because it’s cheaper to get it elsewhere. I think that human labor could potentially go the same way, if machines can be invented that are reliably cheaper and more productive than humans in every area. (And there doesn’t seem to be any technical reason why this can’t be so.)
Of course, either way some sort of government intervention might prove necessary. This sort of thing could easily produce massive unemployment, so it would be necessary to either assure that super-human machines are equitably distributed or to massively tax the super-human machines. And since people are not completely heartless capitalists, people might actively avoid developing technologies that would put hundreds of millions of people on the street unless they could be assured that the safety net was there.
December 6th, 2008 at 6:03 pm
bdbd, I don’t share your faith in Schumpterism and capitalism, but let’s not argue about it right now. Rather, let’s assume you’re right. That still doesn’t make any more plausible Matt’s scenario that the worker decides whether to benefit and, praise be America, has decided to buckle down, make America stronger, and reap the higher income rather than hang out with the Frogs on their long summers.
December 6th, 2008 at 7:11 pm
I’d like to think that would be the case, at least in terms of hours put into jobs, as opposed to one’s own enterprises, but I’m a little bit skeptical. Even as the stability of large corporations declines, people’s sense of economic insecurity will probably drive them to focus more on (and put longer hours into) “steady” jobs.
December 6th, 2008 at 9:35 pm
JohnH, I don’t know how or why you are inferring my “faith” in one thing or another, I’m just saying that meaningful and persistent productivity improvements don’t come from mergers and similar organizational trivia. As Tim Worstall pointed out in 8 above, if longer time frames are used, the work hour/leisure hour shift that Matt is advocating is what actually happened in the US. And implementing those changes was as much political as economic here as well — “40 hour work week” and all that. What has to prevail are the economic fundamentals (which come about through improvements in productivity for labor and other factors) that make the political goals feasible.
With respect to frogs and these differences in vacation patterns, etc, they are as rooted in differing historical traditions and inertias as they are in particular economic or political decisions. As I often say, economics is to the economy as physics is to baseball.
December 6th, 2008 at 9:42 pm
Money is infinite. Time is finite.
Emulate Henry David Thoreau etc.
December 7th, 2008 at 4:25 pm
I think health insurance needs to be decoupled from employment, unions need to be empowered to negotiate again, and the country needs to enjoy about 30 years of peace and prosperity before shortening the work week even appears on the table.
As it stands now, people are paralyzed with fear of losing their jobs. Props to MattSchmidt for citing Bertrand Russell’s “In Praise of Idleness,” which proves that the modern dilemma isn’t that modern. The distribution of leisure is insane. Most people are overworked and exhausted to the point where just taking a nap feels like an unaffordable luxury. But they are the lucky ones, because the alternative to not having enough leisure is to be unemployed and have way too much.
December 7th, 2008 at 4:35 pm
Some people actually have 40 hour work weeks and for others it’s a bad joke. Why isn’t this fixed? Is there something wrong with the idea of ending all overtime exemptions and raising the overtime rate to 175% or 200% instead of 150%, with the intent of encouraging employers to hire more 40-hour workers instead of trying to squeeze more hours out of their existing workers? Individual workers lack the bargaining power to resist such a squeeze – only unions or governments could do so, so having policies in which the government doesn’t protect workers and also blocks the formation of unions that could do so is obviously perverse, if you care about the interests of workers.
December 8th, 2008 at 6:17 pm
Where I work, we get 5 weeks of PTO and we can sell back two weeks worth if we don’t use it. Most people – and these are people making +75k – chose to take the cash rather than the extra time. Most people, given the choice between cash and time off would chose cash. The only reason europeans opt for the time off is time off can’t be taxed.
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