April 18th, 2014
The Economist has a new article asking why rich people work longer hours than the poor nowadays. According to them:
… the rich have begun to work longer hours than the poor. In 1965 men with a college degree, who tend to be richer, had a bit more leisure time than men who had only completed high school. But by 2005 the college-educated had eight hours less of it a week than the high-school grads. Figures from the American Time Use Survey, released last year, show that Americans with a bachelor’s degree or above work two hours more each day than those without a high-school diploma. Other research shows that the share of college-educated American men regularly working more than 50 hours a week rose from 24% in 1979 to 28% in 2006, but fell for high-school dropouts. The rich, it seems, are no longer the class of leisure.
The article then gave two key explanations. The first one is the substitution effect: higher wages make leisure relatively more expensive, so rich people are unwilling to rest; this is compounded by the “winner-take-all” nature of modern economy. The second is simply that the “leisure” by the poor are involuntary. In order words, they are just “forced” not to work, although they would want to work more.
Increasing leisure time probably reflects a deterioration in their employment prospects as low-skill and manual jobs have withered. Since the 1980s, high-school dropouts have fared badly in the labour market. In 1965 the unemployment rate of American high-school graduates was 2.9 percentage points higher than for those with a bachelor’s degree or more. Today it is 8.4 points higher. “Less educated people are not necessarily buying their way into leisure,” explains Erik Hurst of the University of Chicago. “Some of that time off work may be involuntary.”
I have blogged on the “busy trap” here last year (Part I and Part II), and have asked the same question. One finding that I made was that working hours did not actually decrease much in most OECD countries in the past twenty years, although GDP has grown substantially in all of them. I asked whether “these highly-efficient people [are] just more determined to go an extra mile and are more willing to push themselves to the limit”, and I think I can better answer this question now.
To begin, part of the explanations are personal. Many times, we just hate to be idle; we want our schedule to be full everyday, every minute. This is particularly true for the over-achievers (I have seen many of these people here at Harvard), and it is likely these are exactly the same people who are rich. To these people, there are social and peer pressure to just keep themselves busy. There is a stereotype of what “successful” people should look like: always on the BlackBerry, always doing something, always “needed” by someone.
But many of the reasons are institutional too. Those investment banking and consulting jobs that Ivy League students from all sorts of background wanted to get so much are hardly 9-5 jobs. You just cannot “choose” the number of hours that you work, even if you prefer (slightly) less pay but shorter hours. Either you take the job and work long hours, or you quit; there is hardly any middle ground. Furthermore, when most of the economy’s output are now in “services” rather than “goods”, there are problems in measuring and monitoring productivity. Is a “service” that you finished in seven hours necessarily better than that finished in one hour? Not necessarily, and it is hard to tell, but it is easy for a service provider to claim more revenue for the extra hours that they put in. This creates perverse incentive for lawyers (say) to create more complications for their clients. At the end of the day, services are mostly transaction costs of the economy, but when we profit from these friction, we have little interest in eliminating them. Indeed, we would want to increase them.