Work-Leisure Choice and growth

A recent dinner companion inquired whether an economy that was not growing was necessarily a problem. What she had in mind was whether people choosing more leisure to enjoy their incomes rather than continuing to work the same or longer hours created an economic problem. The short answer is no. I will explore that issue further and then make a point about the propriety of governments making work/leisure choices for us rather than leaving the choice to us.

Our incomes grow when we work longer hours, acquire improved skills, work with more tools, or work with better tools. The economy as a whole grows without individual incomes necessarily increasing when more people work (i.e., when the population grows). Unless you are very pessimistic about the prospects for continued innovation and technical improvements in each worker’s productivity, our incomes will continue to increase even if we don’t work longer hours.

Over the last 65 years the average annual hours worked by employed Americans dropped from 1,910 to 1,710 while real disposable personal income per capita (in 2009 dollars) increased from $10,000 to over $38,000. Over the longer period of a century or two the drop in hours worked and the increase in per capital income have been much more dramatic. This dramatic increase in income reflects better skills, more capital (tools) and better capital. But it is less than in would have been if people had not chosen to enjoy that income by working less and playing more. The over all economy can adjust to any of these – growing, stagnate, or shrinking income.

While Bernie Sanders may think that the best way to increase the standard of living for the poor is to redistribute to them some of the high income of the wealthy, most everyone else would agree that only economic growth has and can continue to lift large numbers of the poor out of poverty. Global poverty (per capita income below $1.25 per day) dropped from 50% in 1980 to 20% in 2011, an astonishing achievement totally beyond what any amount of redistribution could have accomplished. Most of us think that the proper purpose of redistributing income is for the better off to finance a safety net floor for those unable to work. This dramatic increase in income was the result of improvements in worker productivity (i.e., better skills and more and better capital) not working longer hours.

But what about the choices workers have made and are making about the hours they work vs. the hours they play with the proceeds of that work once they are well above poverty? Over time as most people’s incomes have grown they have generally reduced the long hours worked six or more days a week. Employers and workers strike deals that maximize the profits of the firm and the happiness and well-being of employees. Why then do many governments feel that they need to legislate the matter? Why, for example, did French Socialists feel compelled to legislate a 35-hour workweek a few years ago?

In limited cases, a public safety argument might make sense to over ride the preferences of workers and their employers, for example, if truck drivers felt included to push themselves more hours than they could safely stay awake at the wheel. Mr. Hollande’s French government is now proposing to remove the 35-hour limit and relax other labor market restrictions. I hope they succeed, as leaving more of such decisions with the people themselves will result in happier workers and a more productive economy.

This issue came up a few years ago in connection with the Greek financial crisis. Here are two of my blogs written three years apart on the situation in Greece: https://wcoats.wordpress.com/2012/02/26/saving-greece-austerity-andor-growth/,     https://wcoats.wordpress.com/2015/02/08/greece-debt-and-parenting/ To over generalize, it is often the case that people living in temperate climates (such as Greece and the Southern cone of the EU) work less and have lower incomes. If they are freely choosing to enjoy more leisure in the lovely climate in which they live, they are no doubt happier and better off because of it. Greece’s problem was not that its many Zorba’s had a great zest for life and played more than they worked. Its problem was that after getting away with playing on other peoples’ work/money, they thought they should be entitled to continue doing so. The balancing of work and leisure that is optimal is a person-by-person decision. The economy will be fine and will adjust to whatever these preferences are. People at different income levels and/or different preferences within the same economy will likely make different choices. There is no justification for the government to impose its notion of what is optimal uniformly on everyone. This is just another example of government over stepping its proper role.

 

About wcoats

Dr. Warren L. Coats specializes in advising central banks on monetary policy, and in the development of their capacity to formulate and implement monetary policy. He is retired from the International Monetary Fund, where, as Assistant Director of the Monetary and Financial Systems Department, he led missions to over twenty countries. Before then, he served as Visiting Economist to the Board of Governors of the Federal Reserve System, and to the World Bank, and was Assistant Prof of Economics at the Univ. of Virginia from 1970-75. Most recently he was Senior Monetary Policy Advisor to the Central Bank of Iraq; an IMF consultant to the central banks of Afghanistan, Kenya and Zimbabwe; and a Deloitte/USAID advisor to the Government of South Sudan. He is currently a member of the Editorial Board of the Cayman Financial Review and until the end of 2013 was a member of the IMF program team for Afghanistan. His most recent book is entitled "One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina."
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