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WHY HASN’T ECONOMIC PROGRESS LOWERED WORK HOURS MORE?*

  • Tyler Cowen (a1)
Abstract:

Why hasn’t economic progress lowered work hours more? One of Keynes’s most famous essays is his “Economic Possibilities for Our Grandchildren.” Keynes predicts that within one hundred years — which would bring us to 2030 — most scarcity will have disappeared and most individuals will work no more than fifteen hours a week. My question is a simple one: Why wasn’t Keynes right? Why have working hours remained as long as they have? Why hasn’t progress taken a more leisurely and less material form than what we have observed? Investigating that issue will help us get at the question of just how much progress has occurred. Under one view, Western life has been caught in a kind of rat race, and a lot of the gains of progress are illusory. For instance there is the argument that higher incomes are largely consumed as part of a futile race to win relative status, and living standards aren’t nearly as high as they might appear. Under some alternative scenarios, people haven’t moved to Keynes’s scenario for some good reasons, such as enjoying work more than we might think, or other hypotheses, as I will outline. In that case the observed changes in real income are robust, and measured correctly, or progress may even be greater than income measurements would indicate. I hope that addressing Keynes’s paradox can help us better understand this longstanding debate on the nature of modern progress.

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1 For a starting point on British living standards in the 1930s, see Stephen Broadberry and Carsten Burhop, “Real Wages and Labor Productivity in Britain and Germany, 1871–1938: A Unified Approach to the International Comparison of Living Standards,” Journal of Economic History 70, no. 2 (2010): 400–427.

2 On the distinction between labor force responses at a point in time, and across long swathes of time, see Alberto Alesina, Edward Glaeser, and Bruce Sacerdote, “Work and Leisure in the United States and Europe: Why So Different?” NBER Macroeconomics Annual 20 (2005): 1–64; I will return to this theme.

3 Huberman, Michael and Minns, Chris, “The Times They Are Not Changin’: Days and Hours of Work in Old and New Worlds, 1870–2000,” Explorations in Economic History 44, no. 4 (2007): 538–67.

4 Bick, Alexander, Fuchs-Schündeln, Nicola, and Lagakos, David, “How Do Average Hours Worked Vary With Development? Cross-Country Evidence and Implications,” National Bureau of Economic Research Working Paper No. 21874 (2016).

5 Huberman and Minns, “The Times They Are Not Changin’,” 541.

6 See for instance Max Roser, “Working Hours,” Published online at OurWorldInData.org, http://ourworldindata.org/data/economic-development-work-standard-of-living/working-hours/.

7 Ellen R. McGrattan and Richard Rogerson, “Changes in Hours Worked, 1950–2000,” Federal Reserve Bank of Minneapolis Quarterly Review 28, no. 1 (2004): 14, document these claims in detail. On some of the institutional factors behind the move to an eight-hour work day, see Robert Whaples, “Winning the Eight-Hour Day, 1909–1919,” Journal of Economic History 50, no. 2 (1990): 393–406.

8 McGrattan and Rogerson, “Changes in Hours Worked, 1950–2000,” 16. Note that I have not found a simple way to do a 2010 updated estimate with consistent methodology.

9 This is drawing on Bureau of Labor Statistics data and Valerie A. Ramey and Neville Francis, “A Century of Work and Leisure,” American Economic Journal: Macroeconomics 1, no. 3 (2009): 189–224. Slightly different numbers from different years, but with a similar overall trend, can be found in McGrattan and Rogerson, “Changes in Hours Worked, 1950–2000,” 16. It is worth noting that good estimates on how many hours of the workday employees actually work are hard to come by. Other scholars report an estimate of seven percent of the workday being spent not working. See Michael Burda, Katei R. Genadek, and Daniel S. Hamermesh, “Not Working at Work: Loafing, Unemployment and Labor Productivity,” National Bureau of Economic Research Working Paper No. 21923 (2016), 4. This is based on self-reports, however, and arguably the actual amount of shirking is higher. We also don’t know whether this shirking has gone up or down over time, which could affect our estimates of overall trend.

10 On relative female to male wages and labor supply response, see McGrattan and Rogerson, “Changes in Hours Worked, 1950–2000,” 15. For gender convergence by sector, see generally Claudia Goldin, “A Grand Gender Convergence: Its Last Chapter,” American Economic Review 104, no. 4 (2014): 1091–1119.

11 Greenwood, Jeremy and Vandenbroucke, Guillaume, “Hours Worked: Long-Run Trends,” National Bureau of Economic Research Working Paper No. 11629 (2005), 1.

12 McGrattan and Rogerson, “Changes in Hours Worked, 1950–2000,” 20.

13 For an affirmation of the relevance of the substitution effect to Keynes’s argument, see Richard B. Freeman, “Why Do We Work More than Keynes Expected?” in Lorenzo Pecchi and Gustavo Piga, editors, Revisiting Keynes: Economic Possibilities for our Grandchildren (Cambridge, MA: MIT Press, 2008), 135–42.

14 Costa, Dora L., “Less of a Luxury: The Rise of Recreation Since 1888,” National Bureau of Economic Research Working Paper No. 6054 (1997).

15 Richard Brown, Courtney C. Coile, and Scott J. Weisbenner, “The Effect of Inheritance Receipt on Retirement,” Review of Economics and Statistics 92, no. 2 (2010): 425–34.

16 Joulfaian, David and Wilhelm, Mark, “Inheritance and Labor Supply,” Journal of Human Resources 29, no. 4 (1994): 1205–34.

17 Alan B. Krueger and Jorn-Steffen Pischke, “The Effect of Social Security on Labor Supply: A Cohort Analysis of the Notch Generation,” Journal of Labor Economics 10, no. 4 (1992): 412–37.

18 David Cesarini, Erik Lindqvist, Matthew J. Notowidigdo, and Robert Ostling, “The Effect of Wealth On Individual and Household Labor Supply: Evidence from Swedish Lotteries,” National Bureau of Economic Research Working Paper No. 21762 (2015).

19 For one classic statement of this argument (which I am not endorsing), see Jared Diamond, “The Worst Mistake in the History of the Human Race,” Discover Magazine (1987): 64–66.

20 See L. Rachel Ngai and Christopher A. Pissarides, “Trends in Hours and Economic Growth,” Review of Economic Dynamics 11, no. 2 (2008): 239–56; on these points, and on the Middletown study see Greenwood and Vandenbroucke, “Hours Worked: Long-Run Trends,” 1.

21 See Ngai and Pissarides, “Trends in Hours and Economic Growth,” on Europe versus America; and on the import of labor taxation, see Edward C. Prescott, “Why Do Americans Work So Much More Than Europeans?” Federal Reserve Bank of Minneapolis Quarterly Review 28, no. 1 (2004): 2–13. On Sweden and America, see Conny Olovsson, “Why Do Europeans Work So Little?” International Economic Review 50, no. 1 (2009): 39–61. If you are wondering, time spent with children has gone up by about two hours a week, for males and females each, when children are present; of course it can be debated how much of this is work and how much is leisure (Aguiar and Hurst, “American Time Allocation: 1965–2005,” 61).

22 Kopecky, Karen A., “The Trend in Retirement,” International Economic Review 52, no. 2 (2011): 287316, at 287.

23 Ibid., 192.

24 See Clemens Hetschko, Andreas Knabe, and Ronnie Schoeb, “Changing Identity: Retiring from Unemployment,” The Economic Journal 124, no. 575 (2013): 149–66.

25 Alesina, Glaeser, and Sacerdote, “Why So Different?” 3.

26 Martin Wolf, “America’s Labour Market Is Not Working,” The Financial Times, Nov. 3, 2015.

27 Charles A. Murray, Coming Apart: The State of White America, 1960–2010 (New York: Crown Forum, 2013); Isabel V. Sawhill, “Where Have All the Workers Gone?” Brookings Institution, Nov. 17, 2015; Wolf, America’s Labour Market.”

28 Wolf, America’s Labour Market.”

29 Allison Schrager, “An Entire Generation of Young American Workers is Missing Crucial Skills,” Quartz, Aug. 31, 2015.

30 See Mark Aguiar and Erik Hurst, “Measuring Trends in Leisure: The Allocation of Time Over Five Decades,” Quarterly Journal of Economics 122, no. 3 (2007): 969–1006; Mark Aguiar and Erik Hurst, “A Summary of Trends in American Time Allocation: 1965–2005,” Social Indicators Research 93, no. 1 (2009): 57–64; Dora L. Costa, “The Unequal Work Day: A Long-Term View,” National Bureau of Economic Research Working Paper No. 6419 (1998).

31 Prescott, “Why Do Americans Work So Much More Than Europeans?” 2.

32 Alesina, Glaeser, and Sacerdote, “Why So Different?” 29.

33 For two versions of this hypothesis, see Robert H. Frank “Context is More Important Than Keynes Realized,” in Lorenzo Pecchi and Gustavo Piga, editors, Revisiting Keynes: Economic Possibilities for our Grandchildren (Cambridge, MA: MIT Press, 2008), 143–50; and Chris Thron, “Lifestyle Tradeoffs and the Decline of Societal Well-Being: An Agent-based Model,” Physics and Society (2015), http://arxiv.org/abs/1508.03524.

34 Francisco Alpizar, Fredrik Carlsson, and Olof Johansson-Stenman, “How Much Do We Care About Absolute Versus Relative Income and Consumption?” Journal of Economic Behavior and Organization 56, no. 3 (2005): 405–21.

35 For one attempt to apply relative status to explain cross-national differences in labor hours, see Samuel Bowles and Hongjin Park, “Emulation, Inequality, and Work Hours: Was Thorstein Veblen Right?” The Economic Journal 115, no. 507 (2005): F397–F412. Note that their claim that inequality should predict higher work hours, through a status effect, need not follow. It could just as easily be that people “close together” in terms of income and background care more about their relative status; more concretely, people may care more about their status relative to the rest of their high school class, or their brother-in-law, than relative to Bill Gates. At the very least this would seem to be an open question.

36 Charles, Kerwin, Hurst, Erik, and Roussanov, Nick, “Conspicuous Consumption and Race,” Quarterly Journal of Economics 124, no. 2 (2009): 425–67.

37 On this comparison, see Henry Blodget, “Over the Past 150 Years, There Has Been a Profound Shift in What Humans Do With Their Time,” Business Insider, Dec. 27, 2014.

38 On the latter point, see Holger Strulik, “How Status Concerns Can Make Us Rich and Happy,” Economica 82, no. 1 (2015): 1217–40.

39 See Veblen, Thornstein, The Theory of the Leisure Class (New York: Modern Library, 1934), 71.

40 Alpizar, Carlsson, and Johansson-Stenman, “Absolute Versus Relative Income and Consumption.”

41 For a version of this hypothesis, combined with some insights from the zero- or negative-sum status hypothesis, see Joseph E. Stiglitz, “Toward a General Theory of Consumerism: Reflections on Keynes’s Economic Possibilities for Our Grandchildren,” Lorenzo Pecchi and Gustavo Piga, editors, Revisiting Keynes Economic Possibilities for our Grandchildren (Cambridge, MA: MIT Press, 2008), 41–85.

42 Benjamin M. Friedman, “Work and Consumption in an Era of Unbalanced Technological Advance,” National Bureau of Economic Research Working Paper No. 21713 (2015).

43 For two looks at monopsony, see William M. Boal and Michael R. Ransom, “Monopsony in the Labor Market,” Journal of Economic Literature 35, no. 1 (1997): 86–112; Orley Ashenfelter, Henry S. Farber, and Michael R. Ransom, “Modern Models of Monopsony in Labor Markets: A Brief Survey,” IZA Discussion Paper No. 4915 (2010). On Walmart, see Alessandro Bonnanno and Rigoberto A. Lopez, “Is Wal-Mart a Monopsony? Evidence from Local Labor Markets,” (2009, unpublished). For a look at why the monopsony model has not won over most economists, most of all as an explanation of medium- to long-run phenomena, see Peter Kuhn, “Is Monopsony the Right Way to Model Labor Markets? A Review of Alan Manning’s Monopsony in Motion,” International Journal of the Economics of Business 11, no. 3 (2004): 369–78.

44 For analyses of some related scenarios under monopsony, see Kip Viscusi, “Union, Labor Market Structure, and the Welfare Implications of the Quality of Work,” Journal of Labor Research 1, no. 1 (1980): 175–92; Alison L. Booth and Gylfi Zoega, “Why Do Firms Invest in General Training? ‘Good’ Firms and ‘Bad’ Firms as a Source of Monopsony Power,” (2000, unpublished); and Francis Green, Stephen Machin, and Alan Manning, “The Employer Size-Wage Effect: Can Dynamic Monopsony Provide an Explanation?” Oxford Economic Papers 48 (1996): 433–55.

45 John Pencavel, “The Labor Supply of Self-Employed Workers: The Choice of Working Hours in Worker Co-Ops,” Stanford Institute for Economic Policy Research Discussion Paper No. 13-036 (2014), 2.

46 See also John Pencavel, “Whose Preferences are Revealed in Hours of Work?” Stanford Institute for Economic Policy Research Discussion Paper No. 15-025 (2015).

47 For some evidence that women adjust better to part-time work and lower-skill work, see Mary Gregory and Sara Connolly, “The Price of Reconciliation: Part-Time Work, Families and Women’s Satisfaction,” The Economic Journal 118, no. 526 (2008): F1–F7. On whether evidence shows a wage gap between part-time and full-time workers by gender, see Barry T. Hirsch, “Why Do Part-time Workers Earn Less? The Role of Worker and Job Skills,” Industrial and Labor Relations Review 58, no. 4 (2003): 525–51.

48 Rogerson, Richard, “Understanding Differences in Hours Worked,” Review of Economic Dynamics 9, no. 3 (2006): 365409.

* For useful comments I wish to thank Johnny Anomaly, Bryan Caplan, Robin Hanson, David Schmidtz, Alex Tabarrok, Bas van der Vossen, conference participants, and an anonymous referee.

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