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Chapter Eight: The Economics of Work and Leisure
The shorter workweek (or greater leisure in other forms) is at the core of my vision of a better society. Why? Leisure is free time, and time is the room available for life. If one values the opportunities which life presents, one ought to value ones own leisure time. One can do with this time whatever one wishes within financial and other constraints. (If, as some argue, a workaholic personally enjoys working, he can always choose to do this in his free time.) Therefore, the quest to maximize freedom from the obligation to work is an aspect of freedom itself, so important to Americans. Questions arise over its economic consequences. What would happen to the U.S. economy if the federal government enacted a shorter workweek? If this move brought mass poverty, then, of course, we would not want to do it.
Economic arguments concerning shorter hours of work arise from a formula used to express the relationship between employment, economic output, productivity, and average working hours. This formula is expressed: Output = productivity x employment x average hours. Productivity, expressing output per worker-hour, is the plug figure. Output, expressed in dollar-denominated Gross National Product (GNP), represents the total volume of goods and services produced in an economy. Employment is the number of persons employed, both on a full-time or part-time basis. Average work time is the number of hours that a person works on average in a given time period. Its statistic can be either the time worked in a particular job - which is how the payroll series reports it - or the time which a worker works in total. The U.S. Census Bureau collects data for its household series according to the second definition. The difference between the two sets of hours statistics becomes clear when a worker holds more than one job. Productivity is output divided by the product of employment and average hours in a given period of time.
Consider the following illustration. Lets suppose that a factory produces cigars. There are five workers employed in this factory (employment). Each worker works forty hours a week (average hours). Each worker can produce three cigars in an hour (productivity). Output is, therefore, five (workers) times forty (hours per week) times three (cigars produced in an hour) for a total of 600 (cigars). Now let us play around with this equation assuming that a change in one variable does not affect the other variables except as the equation requires. Assume first that the market does not support the sale of 600 cigars in a week but only 480 cigars. The cigar manufacturer decides to cut weekly production to 480 units. To accomplish this, he lays off one worker. Now the equation reads: Four (workers) times forty (hours per week) times three (cigars produced in an hour) equals 480 (cigars).
Now assume that the four workers care more about the plight of their laid-off fellow employee than about their own weekly income which we assume is proportionate to their weekly production. They persuade the employer to cut weekly work hours to 32 hours so that the fifth worker can be rehired while output remains the same. The equation now reads: Five (workers) times thirty-two (hours per week) times three (cigars produced in an hour) equals 480 (cigars). The employer has the same cost structure as before. The shorter workweek has saved one job.
This is the classic argument for cutting work hours. Fewer average hours per worker can meet the reduced requirement of labor so that workers jobs are saved. In the example, we have assumed that the cigar manufacturer needed less labor because he needed less production to satisfy the market for cigars. There is also another way that the employers need for labor can be reduced. That is through increased productivity. As an illustration, let us assume that the employer buys a machine which allows each worker to produce 3.75 cigars in an hour instead of 3.0. The factory would initially produce 750 cigars in a week: five (workers) times forty (hours per week) times 3.75 (cigars in an hour) equals 750 (cigars). Lets say that the market will support production of only 600 cigars in a week. The employer could lay off one worker. That achieves the intended result: Four (workers) times forty (hours per week) times 3.75 (cigars in an hour) does indeed equal 600 (cigars). The compassionate four workers, wishing to save the fifth workers job, persuade the employer instead to reduce the workweek to 32 hours. That accomplishes the same result: Five (workers) times thirty-two (hours per week) times 3.75 (cigars produced in an hour) equals 600 (cigars), which is what the employer can sell in the market.
Increased productivity is a driving force for change in labor markets. Increased productivity means more efficient use of human labor. Either a worker can produce more in an hour of work or he can produce the same output in less time, or there is a combination of the two. Worker productivity increases in several ways: When an employer orders a work speed-up forcing people to work faster, that is one way to increase productivity. Another, historically more important way is to introduce machines that allow workers to produce more in a given time. For example, a metal fabricator might purchase a larger or more specialized cutting machine. A grocer might introduce electronic scanners to read bar codes on products in a check-out line. In general, the way to improve efficiency is to introduce large-scale production which achieves economies of scale and more refined production techniques. McDonald's has hamburger-making down to a science. General Motors can produce and distribute cars efficiently. Persons employed in modern business firms have both the equipment and methodology to organize work more efficiently and cut costs. That is what makes industrial progress possible.
If productivity increases take place over a long period of time, labor is displaced to other sectors of industry. Agriculture is the classic example. In the 1860s, half of Americans worked on the farm; today, less than 3% of American workers do. Yet, todays farmers produce as much food and other agricultural commodities as our society needs. The surplus farm population must find work in other sectors of industry. As agricultural employment waned, there was first a boom in manufacturing, mining, and other industries which produced goods. In the fifty years between 1951 and 2001, however, employment in U.S. manufacturing industries rose from 16.4 million to 17.7 million workers - an increase of only 8% - while total U.S. employment increased by 2.7 times. The reason for the relatively flat employment is not that the volume of manufactured products stayed flat but that productivity in manufacturing industries rapidly increased. Bureau of Labor Statistics data indicate that manufacturing productivity rose by about 3.5 times between 1950 and 1999.
The productivity figures would suggest that, since there was also a slight increase in employment, the volume of manufactured goods produced in the United States rose between 3.5 and 4 times between 1950 and 1999. This increased output would imply a rising standard of living for Americans. If, however, manufacturing employment had risen proportionate to the increase in total employment, the volume of goods manufactured in our country would have risen by nine to ten times during this time. However, the market would not have borne the increased quantity of goods. It would not have been smart for manufacturers to produce what they could not sell. Instead, they would have cut their payrolls since the productivity increases canceled the need for additional employment. The main reason for the declining employment in manufacturing relative to that in the general economy is, therefore, labor displacement due to increasing productivity. Another reason, of course, has been outsourcing of production to low-wage countries abroad.
So far, our discussion has looked at these relationships in the context of a closed economic system. For purposes of discussion, we have assumed that the U.S. economy was self-contained. However, production has gone global in the new global age. A large share of consumer goods bought by Americans is produced in China, Mexico, Japan, and other countries abroad. That complicates the picture. Indeed, if U.S. workers ever succeeded in gaining a shorter workweek, that in itself would accelerate the flight of production out of the country because employers view shorter work hours so negatively. We, therefore, need to begin thinking about political structures and mechanisms that would shorten work hours around the world. But that gets ahead of the discussion.
First consider an issue raised in Nonfinancial Economics: the Case for Shorter Hours of Work. The book started with the traditional argument that, if productivity rose without a reduction in working hours, labor would be displaced and unemployment would rise. That obviously has not happened. In the decades following the Great Depression, U.S. unemployment has remained relatively low, fluctuating within a range of 3% to 7%. What did happen, then? Statistics show that employment rose - faster than the gain in population - and there was a skyrocketing rise in output as represented by GNP. Gross National Product, expressed in constant 1996 dollars, rose from $2.377 trillion in 1960 to $9.318 trillion in 2000 - by almost four times. The U.S. population increased by 1.57 times during the same period. By implication, then, Americans today are 2.5 times more prosperous than they were forty years ago. American workers have thus traded their potential leisure for increased prosperity - or so some would have us believe.
Many people today who remember how their parents and grandparents lived would shake their heads at such an assertion. Conceding that previous generations did not have microwave ovens, VCRs with remotes, DVD movies, personal computers, and other fixtures of contemporary life, todays Americans live in greater insecurity, work at a more frenzied pace, and financially have problems which their forbearers did not have. In a real sense, living standards have not improved or not improved that much. At least, this is how it seems.
We need to analyze Gross National Product to see what is happening. The three major components of GNP are: goods, services, and government expenditures. In 1960, the distribution between them was: goods, 37.6%; services, 25.8%; government expenditures, 21.5%. In 2000, the distribution was: goods, 28.4%; services, 39.6%; government expenditures, 17.5%. As one might suppose, the percentage of GNP taken up by goods production dropped as manufacturing employment became relatively less important. Government expenditures rose in absolute dollars but declined as a percentage of GNP, especially spending by the federal government. The big story has to do with the increased percentage of GNP going toward services. What services? Therein lies the rub. Those services which are needed in life or which make people happy are, in my view, beyond moralistic questioning. We can accept them as legitimate enterprises, even as producing hoola hoops is legitimate if the market demands this kind of product. What is questionable is the growing amount of services which are not wanted but are regarded as a necessary evil. McCarthy and I called this economic waste. The government does not publish statistics of activities under this classification. All we can do is cite examples.
A growing enterprise in America is the criminal justice system and its companion, the $35 billion-a-year corrections system. Lets take corrections. In 1950, there were 166,123 persons in state or federal prisons in the United States; the rate of imprisonment was 110.3 persons per thousand. By 1980, the number imprisoned had jumped to 315,974 persons, and the rate to 139.2 persons per thousand. In 1998, the number of federal and state prisoners was 1.3 million. The rate had climbed to 445 persons per thousand. In addition, 592,000 persons sat in local jails. Imprisonment is not cheap - about $35,000 per inmate per year. Beyond this are costs of the police, prosecutors, and other personnel of the criminal-justice system. A state such as Minnesota makes extensive use of parole and parole officers. Of course, criminals will always be among us; but three times as many per capita as twenty years ago? The main factor affecting the increasing prison population is not increased criminal activity but sentences mandated by state legislatures. And, of course, the war on drugs puts many people away for nonviolent crimes. The growth of the corrections industry is important to our economy, especially in rural areas.
Another industry with much growth potential is the lawsuit industry. Money is no object where the courts are concerned. A jury awarded a black woman in Kansas City $1.56 million because security guards at a department store, who may have been racially motivated, stopped and searched her. Maybe the two obese ladies who sued McDonalds for supersizing their meals can win a comparable judgment? Attorneys advising various groups in the Enron bankruptcy, some of whom also gave Enron advice in its questionable business dealings, have already billed the company more than $300 million in legal fees. More than 3,000 of them, typically charging between $300 and $500 per hour, have been trying to untangle the companys complicated structure of deals that went sour. There is yet no plan of reorganization. Enron continues to enjoy massive cash flows but the stockholders will likely receive nothing. Given license to extract large sums of money from productive enterprise, lawyers could rack up huge gains in GNP by exploiting actual or trumped-up disputes that arise in society. Legal activities could expand to virtually any size. Medical malpractice, in particular, has potential.
Nonfinancial Economics attempted to identify the principal types of spending which represented economic waste. Organized gambling is a $25-billion-a-year industry whose service produces a few big winners and many losers; there may be some entertainment value in that. It costs an average of $18,273 per year for tuition at private colleges; this is money which needs to be spent just to get started in a career. So fierce is the competition for good jobs that young men and women must continue their educations for longer periods. And how about the financial value of consuming mind-altering drugs, drinking alcoholic beverages, or smoking tobacco products? These activities also boost GNP on the medical-services and law-enforcement end. In 2000, the U.S. government spent $377 billion for national defense, or 3.8% of GNP, and that was before the post-September 11th war on terrorism. The pork-barrel aspect of fighting terrorists excites members of Congress and their defense-contracting clients in a number of states.
Medical care, to restore body and mind to a normal condition, accounts for a large and growing share of the services component of GNP. Pharmaceutical companies know that they can rack up huge gains in sales of anti-depressant drugs by marketing their products directly to the patients. Though these must be prescribed by doctors, insistent patients usually get their way. GlaxoSmithKlein, the maker of Paxil, spent $60 million for advertising during the first six months of 2002 and achieved a 25% gain in sales. Such medications are increasingly given to children and adolescents. The volume of psychiatric drugs prescribed for this age group more than doubled between 1987 and 1996. Some say this is because the insurance companies will pay for medications to treat psychiatric problems but not for other forms of treatment or therapies. Their effect on the childrens brain development is unknown.
Christmas gifts, of course, make people happy; but, since retailers count on Christmas sales for half to three fourths of their annual profits, commercials promoting mass guilt must persuade customers to buy various kinds of products. You do love your children (or your husband or your wife), dont you? Christmas is but one of several commercial holidays which had a religious beginning. One needs to buy flowers or greeting cards for St. Valentines Day, a new wardrobe for Easter, or a spooky costume for Halloween. Maybe your wife would like a new diamond ring on her wedding anniversary? If she enters the work force, then you will need to pay a day care center to watch your children; this, too, contributes to GNP.
Likewise, families staved of leisure need to eat out more often. Free glasses of water would not be their beverage of choice; it has to be a branded soft drink. You will need to buy your kid a computer so he or she will not enter school at a disadvantage with respect to the other computer-literate kids. The kid may prefer a toy hawked on television or, perhaps, designer jeans. All products, of course, need to be merchandised aggressively through the media. Promise the potential customer a nonexistent free vacation if thats what it takes. Let Ed McMahon persuade some elderly woman that she has (almost) won the Publishers Clearinghouse Sweepstakes; she doesnt have to, but it might help if she bought some unwanted magazines.
When I tried to suggest a tradeoff between leisure and economic waste at a meeting of a Minneapolis landlord group, a well-to-do woman, whom I consider a friend, suddenly turned hostile. Why, this is the worst social-engineering scheme Ive heard of in a long time, she said. What if I want to drive my Volvo or Mercedes? Who are you to try to take it away? I told this woman that my proposal had nothing to do with her choice of cars. It was about eliminating waste in forms which, hopefully, everyone might agree would not be missed. What if there were no crime? Would we miss the nonexistent punishment? If there were no illness or war, would the subsequent medical treatment or bustling war production be missed?
Admittedly, individual businesses whose business it is to supply corrections services, medical treatment, or arms would miss supplying those products if the need for them no longer existed; and so might government, which depends on tax revenues from their enterprise. However, the general public would be better off if people did not have to work to pay for more products of this kind.
In economic terms, increasing GNP does not go towards producing food, clothing, shelter, and other of lifes necessities. As consumer products, such products are relatively inelastic in an expanding economy. The rapidly growing parts of GNP lie in the more wasteful types of output. Thats why people today do not experience rising standards of living though statistical data suggest that they should.
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(For other writings on the shorter-workweek proposal, see Shorterworkweek.com.)
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