Sunday, January 3, 2010

Economics of work and leisure

Recently, I cut back work to 4 days a week with a surprising result. Rather than feeling like I am enduring marginally less of a bad thing, I am actually finding work more challenging and interesting – even though I am surrounded by the same public sector circus.

I feel like a 20% cut in work has resulted in an 80% improvement in my work satisfaction, rather than merely a 20% boost.

As an economist I really shouldn’t be surprised. Economic theory suggests an optimal work time – there are decreasing marginal benefits to work (in terms of pay), and increasing marginal costs (in terms of time, level of stress, level of frustration etc).

But this experience (and the popularity of this television show) has got me thinking about how the wellbeing of society at large can be improved by working less.

I want to start this analysis with a simple question. Why do so many different jobs, using different skills, different degrees of physical and mental effort, in different locations, all seem to require a single person for about 40hours per week from Monday to Friday, 9am to 5pm, with 4 weeks holiday per year?

My best explanation is that by standardising the work week and adjusting the number of workers to suit, we get two benefits. First, we have a coincidence of work time. Most jobs require interaction with others, whether as part of a manufacturing process, or as part of a service industry. The second benefit is that we have a coincidence of leisure time. We all know that most people will be available on weekends or evenings for shared leisure activities.

Once the five day week is standardised, we find industries which require workers on evenings and weekends having to pay more for labour. The social norm of higher valued time on weekends and evenings, due to coincidence of leisure, then became embodied in legislation.

Surely there is a loss to society from this standardisation? People will value leisure time differently, and value the coincidence of leisure differently? Thus any regulations enforcing a standard work week will be inefficient in the economic use of the term.

This is true. But as is often the case, there is a trade off between economic efficiency and social cohesion.  Too much work and leisure coordination can result in problems like in the photo above.

Maybe it is time to move away from the standard week, with more casual and part time positions, as a way to improve efficiency. This is already happening. To maintain social cohesion is a casualised workforce, coincidental leisure time can be achieved by declaring more public holidays (Australia currently has about 11 public holidays – 3 at Easter, 3 for the Christmas/New Year period, leaving just 5 for the rest of the year. Sweden has 16 for example, and Japan 15.) I’m sure there are plenty of politically attractive opportunities to declare more holidays – Sorry Day (13th Feb 2008) is one that stands out.

Given my experience moving to a part time job, the idea of a more flexible workforce and more public holidays stands out as a simple way to improve wellbeing in our society.


  1. Good blog. It’s certainly an interesting area.

    I think there are a few points that need to be thought about further.

    1. From an economic efficiency standpoint, what is the logic in deregulating the working week (and removing penalty rates) and then regulating that people have to have more public holidays?

    Surely regulating the number (and date) of public holidays brings a host of inefficiencies too.

    2. I can see a range of other benefits for keeping to a standardised work week including improved national savings and benefits to the quality of leisure time.

    National savings will reduce if casualisation workforce continues to expand. While this may be less of an issue for part time workers, it is particularly difficult to save money when you earn casual wages. On some level you would think people should save more if their income was uncertain. But, having an uncertain income stream actually makes it more difficult save as you are unable to have a structured saving plan.

    The combination of improved communication networks (email/mobile phones etc) and the deregulation of the work week may reduce the quality of leisure time. One of the benefits of having a standard working week is that there are certain hours in which it is appropriate to contact persons for work related matters and certain times at which it is inappropriate. As people move to a more haphazard work week, it is likely that it will become a social norm (more so than now) for bosses and work colleagues to contact you outside of your working hours – essentially moving to a world where people are on call 24/7.

    I'm sure there are many more (efficient public transport provision, easier comparison in the job market...)

    3. If it were left to supply and demand, the market would still offer a premium to people willing to work at night and on the weekend. Even with the penalties, pubs and restaurants always have trouble finding staff to work these shifts.

    Hope to see more on this issue in the future.

  2. Thanks for the comment Rimu.

    I guess in my mind I was not thinking about government intervention to remove penalty rates, or somehow facilitate part time and casual work. It was more statement that as we shift in this direction we are improving efficiency.

    However, as we move in this direction (driven not by government but by business) governments can maintain some social cohesion by introducing more public holidays. At the same time, our tendency to work past our optimal work time (like I did) can be helped by government. Penalty rates would remain due to both high opportunity cost of working public holidays, as reflected by legislation.

    2. Not sure if I agree with your thoughts on saving rates for casual workers. I always found casual work an easy way to save. Maybe there are some surveys on this trend.

    I also believe it is easily to be uncontactable if you want to be when you are not 'on the clock' - turn off the work mobile, don't check emails, don't give work associates your homke number.

    I think your public transport efficiency point might be backwards. If we all commute at the same times, we have short periods of high volumes, followed by long periods of low volumes (for public transport and private vehicles). One current congestion busting policy is to allow government workers flexible start and finish times!

    3. Agree. I think I tried to say that the premium evolved over time through both social pressures and regulation. You only need regulation is people are willing to work those hours for less.

    Yes, it seems there is a lot more to consider and I may have to revisit this topic.

  3. Maybe you are simply a better saver than I am. I always had trouble saving when I was a casual worker, even when I was making relatively good money.

    As for being contactable, it is inevitable that if we move to a less structured work week, we will be expected to be contactable.

    The pioneers of the flexible work week will have to offer something to sell the deal to their dogmatic 9 to 5 bosses. Said employees will offer to be contactable outside of their work hours 'in case of emergencies'.

    As te flexible work week becomes more common place, it will become the norm to be phoned outside of your working hours to discuss the low level of the coffee jar or next week's staff meeting.

    The public transport issue is too big for a comment. Maybe I'll try to do a blog about it tomorrow. I agree with you on some level, but I will try to argue the point for the hell of it.

  4. Great. Love a good argument! I'll be interested to see what you have to say.

  5. Hey Cameron,

    I read this post a couple of weeks ago so I can't speak directly to it now but I do remember it reminding me of Bertrand Russell and his essay: In Praise of Idleness. Link:

  6. Hey, I have been thinking about this, and I was referred to this page by someone.
    I'm quite curious what thoughts you have to this post:

    In an ideal world...

  7. If history is any indicator, this won't happen. To date, it seems that technological advancement has increased the gap between the wealthy and the not wealthy. That is, only those who own the technology benefit from it, not it's end users.

    I disagree here. Those who don't own the technology do benefit from the decreased cost of goods produced using new technologies

    In the 70's and 80's there was a belief that our radical technological advancement would produce the results you describe, but reality has proven very different. As others have said, we work more, longer hours, and under more stress that every before. What's more, in relative terms we (the common people) are less wealthy than every before..

    I agree

    It also seems that our level of innovation and technological advancement slowed since the 60's - 80's. Yes we have the Internet and lots of gadgets (mobile communications devices) but that's not a whole lot of innovation, just lots of incarnations of they same technology with small incremental changes. Even quantum mechanics has not advanced huge amounts from where Einstein left off. This is in contrast to the huge advancements made through the 60s-80s (and maybe through to the 90s)..

    Tyler Cowen would agree with you here. He wrote a boot called The Great Stagnation which essentially argues that the gain from technology changes peaked in the 1970s and that we have essentially not gone anywhere since then

  8. Wow that was a fast reply.
    What did you think of the original post?
    That was the one I meant to refer you to.

  9. No thoughts?

    - myne

  10. Hi again.
    I actually disagree with the starting premise -

    "In the future we will need less hours of labour per unit of economic output. Ie we will be able to sustain ourselves with less effort through technology.
    * This future will cost jobs and productive lives unless pressures are applied to the workforce. Take a look at the US, EU.
    * There are 3 pressures I can think of that might enable full employment when there is less work to be done.
    - Remove minimum wage (cheaper to business)
    - Remove overtime and weekend pay (cheaper to business)
    - Restrict hours worked"

    Actually, technology that makes us more productive does not displace demand for labour. If that was the case (now or ever), why don't we all work fewer hours right now? Technology has changed rapidly in the past two centuries, yet we work just as much as ever.

    I explain why here

    Also, some construction/mining companies and hospitals use rosters that are similar to your proposal, but allow some flexibility in the number of hours worked for each employee (eg, some part time, some full time employees).

  11. Do you think we are actually producing more per capita, or do you think that more tasks are being counted in the economy?
    Take for example the traditional family unit.
    The father worked, the mother did house chores and raised children.
    The mother's work was never counted as an economic contribution. Contrast that to today, and the mother works. Thus often the chores and rearing are outsourced. This outsourcing does add to the GDP. So it would appear in the numbers that the modern economy is more efficient than the old one, despite not achieving a net increase in product.

    Consider also, the other traps we have created for ourselves. The rat race. Due to lenghty commutes, many people turn to restraunts for their meals rather than prepare their own. This previously uncounted economic output is now counted.

    Now, that's oversimplified, but it's one factor to consider. We are counting more than we used to.

    The other one worth considering, I will steal from Steve Keen. He has modelled to a convincing degree, the idea that debt actually drives GDP. More money means more work.
    The problem with that, is that the extra money has to go somewhere. Usually it shows in asset price increases and broader inflation. Consider the Australian house price index, and consider the fact that the CPI was adjusted in 1997 to remove mortgage payments. This means that the inflation of house prices was not reflected in the CPI, so it didn't drive interest rate increases.

    The interest rate increases we didn't have point to an interesting possibility. We could have worked less, avoided the house price increases, AND avoided interest rate increases.
    After all, the RBA is tasked with removing money from the system. Money that was earned through labour. I am not sure if that money is effectively zeroed from the books, or what exactly happens to it, but it is removed from play. Now, if you're so earning so much that that money has to be effectively nullified, wouldn't it therefore be saner to work less?

    If you think about it for a moment, it's possible to conceive that we're actually not increasing productivity, we're just working harder for the exact same net outputs.

    By keeping hours high, we're causing inflation to destroy the savings from our previous labour. Like a fit runner, we've tilted the treadmill to keep our effort constant, rather than reducing reducing our effort to keep our speed constant.

    Now, if we take a glance over at the economies in recession, we see that now the financial fuel has gone, the average hours of work is lower. Some are working 'full time' while others sit around unemployed, waiting for the fuel to be stoked. Surprisingly, despite large reductions in the number of hours worked, the reported GDP has fallen only slightly. While some are undoubtedly going hungry from time to time, they are all still living, and there are still the same number of houses as there were before.

  12. Couldn't this mean conceivably that those that ARE working, are working more than they actually need to? Couldn't this mean that, if the working hours per week were reduced appropriately, that each and every person in those economies could contribute to the economy without causing inflation or asset bubbles?
    (Ignoring the Fed's money printing)

    Now, if you consider the roster I suggested, you'll notice that there are 16% fewer commutes, 40% more effective use of plant and equipment, and 41 extra full days off per year.
    This should reduce the costs for employees and businesses, which will either cause higher net profits or, it could be argued as a case to cut hours for the same output in the same timeframe.

    Not only would we be working less, but we collectively would achieve the same output using fewer inputs AND theoretically have more whole days to enjoy the fruits of our labour.

    Happier people, in a non-inflationary environment with more time to exercise, to read, to study, to practice music and other arts, or relax.

    Like yourself, the entire economy would hopefully be enjoying their work rather than bearing less of a bad thing.

    - myne

  13. I agree that over time as our productivity improves we could all work less to acheive the same output. But would we choose this as the optimal outcome, or would we choose to work a little more for even more output?

    My personal view is that we are probably at a suboptimal point of overworking, but how do you get everyone to cooperate to work less? Those that don't cooperate will get ahead, bid up asset prices etc.

    That's why I suggested more public holidays as a way to get cooperation for working less.

    I think your roster is one option of how business could think more freely about optimising labour inputs. But there are long standing traditions and laws to get past - overtime pay on Sundays and evening, church on Sunday, Saturday sport etc.

    That is why I make a point that the coincidence of work and liesure is important.

  14. This comment has been removed by a blog administrator.

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