Why Are We Working Longer?

I am on my way back from vacation and into work. Unfortunately there’s a tempestuous lightening storm here in the usually sunny Orlando delaying my flight so I think now would be a good time to take stock of the activity that makes up at least 50% of most of our adult waking lives – work.

In most Western countries like the US, UK, Canada, Australia, Germany, France etc. productivity has more than doubled since the early 70s. In Japan’s case its tripled. And yet the OECD average hours worked per year has declined by only about 11% since 1970. When you factor in the fact that ‘average hours worked’ doesn’t encapsulate other work related activities that you don’t clock like checking and responding to emails, preparing for work presentations/conference calls and side projects we may not be seeing much change at all.

Stop for a moment and think of the technological change since the early 70s. PCs, the internet, 3D printing, mobile phones, basic AI, JIT manufacturing, Big Data etc. Not to mention the fundamental advances in medicine, physics, biology, engineering, finance, etc

If we’re being so productive, why do we need to work as long?

Standard economic models assume an income effect: that is, as we get richer and satisfy our material needs we tend to desire more leisure time. Unfortunately this effect seems to not hold in the real world; in fact it seems the more educated and the higher income you have, the more you work.

This rejection of the income effect in the real world may be readily explained however by a simple fact – across most Western countries real wages (wages adjusted for inflation) haven’t actually risen much…they’ve actually been stagnant since the 80s. So in fact, people have not been getting much richer at all (see below for the the EU and US).

The increased incomes of the rich (or more accurately, those working professionals in the top 19% outside the top 1%) hides another factor that can only be substantiated anecdotally (because data is so hard to attain) – they are working far more hours than they used to. So in effect their real wages per hour have fallen as well. Investment bankers, lawyers, doctors etc. are running themselves into the ground. If you actually worked out the wage per hour of some of some of these occupations, and factor in student debt, junior level professionals don’t actually earn much more than car mechanics, janitors and yes, even McDonalds employees!

But stagnating wages only partly explain the problem. Yes, we may have to work more to stave off credit card repayments and ballooning student debts but our productivity boon should have been enough to tide us over.

Why are we working longer hours?

The answer lies in the realm of political economy more than economics per se in my opinion.

The decline of trade unions in the West since the 70s/80s has basically greatly helped employers to consolidate bargaining power to the point where they can employ a divide and conquer strategy against workers. Real wages have stagnated in tandem with trade union density falling. The liberalisation of world capital flows but not the liberalisation of world labour has created a powerful imbalance in economic power between the two factors of production. Therefore, those owners of capital can expect higher returns than owners of labour, at the cost of labour (after all, the return on capital is a function of the return to labour). Finally, the difference between taxation of labour and capital is noteworthy, capital gains tax or property taxes in most Western countries (if they exist at all), are several orders of magnitude lower in their rates than income taxes on working stiffs like me or you.

These forces have then actually fed into the political side of the equation, making politicians and technocrats reinforce these trends and thereby, increasing inequality in most OECD countries. The conservative revolution of the 80s was a hallmark of this. Politicians like Thatcher and Reagan would then simply go about implementing policies to squeeze labour and improve the returns on capital for owners of capital because they were their constituency. Even supposedly independent central bankers became infatuated with managing inflation (so as to have a macro environment beneficial to owners of capital) at the cost of improving the employment situation (so as to have a macro environment beneficial to the owners of labour).

As a result, today capital is in a far stronger economic bargaining position than labour. Employers can basically demand full commitment from their workers around the clock and if workers don’t like it, they can be easily replaced or the company can move abroad. The insidious nature of modern labour relations has even evolved to the point that workers engage in a race to the bottom by individually demanding less and less of their employer and giving more and more. The only things separating many workers from the cruel abyss of working poverty (like that found in America) are government regulations on the workplace like mandated overtime/maternity leave/minimum wages/working time directives/occupational safety etc. – the very things that vanishing unions brought to the Western world in the first place.

And that explains why we haven’t seen and why we aren’t going to see any of the productivity boon like traditional economic models would predict…and why we are working longer.

Time was when a college degree was a gateway in to an “easier” life; kids would no longer have to lay bricks like their fathers in the baking sun, or repeat the same physical movement hundreds of times over on a factory floor. That nirvana is gone. The very idea of a happy ending that the older generation holds about white collar work is now completely out of date. An hourglass economy is emerging where politico economic forces and impersonal economic forces like automation and offshoring are not just holding down wages for lower skilled workers but also eliminating the roles of medium skilled workers like secretaries and bookkeepers. And as we’ve just discussed, even the rich workers are being squeezed as well, working longer hours for similar salaries.

The solution? Aim to derive as much of your income as you can from capital. Because being a worker bee is hiding to nowhere in this day and age, no matter where you are in the beehive hierarchy.