Just like any other academic field, economics has had its fair share of pundits making wrong predictions. The recession of 2008 and the crisis of oil markets are two recent examples. The predictions by the majority, in these instances, were just the opposite.
But one can find many other instances. One of the most famous one was uttered by arguably the most famous economist of the 20th century, Lord John Maynard Keynes. In a 1930 essay titled Economic Possibilities for Our Grandchildren, Keynes hypothesised that the nature and hours of work would change drastically. Within a century, he wrote, the positive trends in productivity per capita (output per person in an hour) would ensure that people will have to barely work to make ends meet. The average working hours per week per person in the 1930s was around 47 hours of hard toil. By now, they should have been around 15 hours, going by productivity trends (and Keynes’ prediction) since that time. In fact, up till 1970, the average number of hours spent working (in the western hemisphere) declined to around 39. But then the decline in working hours stopped. For almost five decades now, the working hours have barely budged. Human capital is more developed than ever and the pace of technological advances is breath-taking, but working hours seem to be stuck at a point rather than decline with productivity. So what gives?
A few possible answers to this conundrum appear in the form of research by Harvard economist Benjamin Friedman, who was also puzzled by the non-increase of leisure (non-work) time despite all the productivity improvements. He considered various possibilities. One was that perhaps people just don’t like leisure and their greed propels them to keep working to earn more rather than take time off. Another possibility centred around the attractiveness of the workplace because people get to realise effective opportunities to socialise, make new connections and know more about others that will help them gain a social and financial advantage.
In short, he had to discard both of these possibilities since data did not support these assertions. But a third possibility proved more convincing and was backed up by data. It occurs that majority of the people are just not wealthy enough to work less. Turn this statement around, and it says that there is high inequality in terms of income which leaves people stuck at the same number of working hours. But wait! Didn’t data show that productivity had increased almost eight-fold since Keynes’s time? Yes it does. But here’s the important thing: the gains from this eight-fold increase in productivity are very lopsided. Only a small fraction (the top percent of income earners) had most of the gains from productivity going to their coffers. The others, especially the Les Miserables of Victor Hugo, share a tiny fraction of the fortune that accrues due to productivity improvements.
What Friedman found through his research is very much true of the American economy in particular, and a few developed economies in general. But there are other important lessons that can be gleaned from these findings that apply to the working of all economies. Take, for example, the pitfalls of aggregating and averaging economic data. As an economist, I’ve always had a healthy disregard for the practice of averaging data because this tends to mask important differences and trends. The number of the productivity increase per worker is an aggregate number that hides the differences in productivity of upper and lower tiers of income earners. Pakistan’s per capita income (an average number) over the last couple of years looks healthy, but babies are still dying in Thar due to malnutrition and poverty is as rampant as before. In our case, policymakers can put up impressive aggregated figures to tout improvements and contract even more debt, but it keeps troubling disaggregated trends under wraps.
Inflation is another aspect of this story, though Friedman does not discuss it explicitly. While the aggregate income may be increasing per year, it says absolutely nothing about the disaggregated real or disposable income, the one which is left after adjusting for inflation and other liabilities. This could go a long way in explaining why persistent hard work over time may yield little in terms of income and savings (and thus the standard of living, which is highly correlated to income). In the 1970s, 1980s, 1990s and 2000s, inflation in Pakistan stood at an average of 14, 7, 9.5 and 5 percent, respectively (these are official statistics. Non-official estimates put the numbers higher). These rates over four decades are high by any standard. The straightforward implication is that unless one found a source of a substantial increase in income, the number of working hours would be more or less the same to maintain a minimal standard of living. My guess is that this is true of a major portion of Pakistan’s working labor force.
Technological unemployment is another aspect of this debate, albeit it’s darker version. Keynes’ earlier suggestion found reflection in the later day idea that automated systems (like robots) will do the work that men did, leading to “technological unemployment.” He was optimistic in thinking that such unemployment effects will be evenly distributed and felt little because the wage rates would be the same and working hours less. But it has actually turned out to be the other way around. Present day economies are teeming with unemployed people who are desperately seeking work to earn something rather than sitting around and enjoying their leisure time.
So in terms of the paradox of work, the main conundrum is that why are working hours more or less stuck at a specific point? Friedman’s paper offers a few explanations, but there are many things that need to be discussed and explained. For example, another related paradox is that why do rich people work as many hours as the poor despite having no need for it? I am talking here about the ones who have earned through hard work, and not rent seeker type rich folks. There is no concise answer to this question. Explanations now mostly concentrate on psychology (they feel unfulfilled when sitting idle) to sociology (they want to be socially well-recognised).
Whatever the explanation, vexing questions like these require more research.
The writer is an economist and can be reached on Twitter @ShahidMohmand79
But one can find many other instances. One of the most famous one was uttered by arguably the most famous economist of the 20th century, Lord John Maynard Keynes. In a 1930 essay titled Economic Possibilities for Our Grandchildren, Keynes hypothesised that the nature and hours of work would change drastically. Within a century, he wrote, the positive trends in productivity per capita (output per person in an hour) would ensure that people will have to barely work to make ends meet. The average working hours per week per person in the 1930s was around 47 hours of hard toil. By now, they should have been around 15 hours, going by productivity trends (and Keynes’ prediction) since that time. In fact, up till 1970, the average number of hours spent working (in the western hemisphere) declined to around 39. But then the decline in working hours stopped. For almost five decades now, the working hours have barely budged. Human capital is more developed than ever and the pace of technological advances is breath-taking, but working hours seem to be stuck at a point rather than decline with productivity. So what gives?
A few possible answers to this conundrum appear in the form of research by Harvard economist Benjamin Friedman, who was also puzzled by the non-increase of leisure (non-work) time despite all the productivity improvements. He considered various possibilities. One was that perhaps people just don’t like leisure and their greed propels them to keep working to earn more rather than take time off. Another possibility centred around the attractiveness of the workplace because people get to realise effective opportunities to socialise, make new connections and know more about others that will help them gain a social and financial advantage.
Pakistan's per capita income has looked healthy over the last couple of years, but babies are still dying in Thar due to malnutrition and poverty is as rampant as before
In short, he had to discard both of these possibilities since data did not support these assertions. But a third possibility proved more convincing and was backed up by data. It occurs that majority of the people are just not wealthy enough to work less. Turn this statement around, and it says that there is high inequality in terms of income which leaves people stuck at the same number of working hours. But wait! Didn’t data show that productivity had increased almost eight-fold since Keynes’s time? Yes it does. But here’s the important thing: the gains from this eight-fold increase in productivity are very lopsided. Only a small fraction (the top percent of income earners) had most of the gains from productivity going to their coffers. The others, especially the Les Miserables of Victor Hugo, share a tiny fraction of the fortune that accrues due to productivity improvements.
What Friedman found through his research is very much true of the American economy in particular, and a few developed economies in general. But there are other important lessons that can be gleaned from these findings that apply to the working of all economies. Take, for example, the pitfalls of aggregating and averaging economic data. As an economist, I’ve always had a healthy disregard for the practice of averaging data because this tends to mask important differences and trends. The number of the productivity increase per worker is an aggregate number that hides the differences in productivity of upper and lower tiers of income earners. Pakistan’s per capita income (an average number) over the last couple of years looks healthy, but babies are still dying in Thar due to malnutrition and poverty is as rampant as before. In our case, policymakers can put up impressive aggregated figures to tout improvements and contract even more debt, but it keeps troubling disaggregated trends under wraps.
Inflation is another aspect of this story, though Friedman does not discuss it explicitly. While the aggregate income may be increasing per year, it says absolutely nothing about the disaggregated real or disposable income, the one which is left after adjusting for inflation and other liabilities. This could go a long way in explaining why persistent hard work over time may yield little in terms of income and savings (and thus the standard of living, which is highly correlated to income). In the 1970s, 1980s, 1990s and 2000s, inflation in Pakistan stood at an average of 14, 7, 9.5 and 5 percent, respectively (these are official statistics. Non-official estimates put the numbers higher). These rates over four decades are high by any standard. The straightforward implication is that unless one found a source of a substantial increase in income, the number of working hours would be more or less the same to maintain a minimal standard of living. My guess is that this is true of a major portion of Pakistan’s working labor force.
Technological unemployment is another aspect of this debate, albeit it’s darker version. Keynes’ earlier suggestion found reflection in the later day idea that automated systems (like robots) will do the work that men did, leading to “technological unemployment.” He was optimistic in thinking that such unemployment effects will be evenly distributed and felt little because the wage rates would be the same and working hours less. But it has actually turned out to be the other way around. Present day economies are teeming with unemployed people who are desperately seeking work to earn something rather than sitting around and enjoying their leisure time.
So in terms of the paradox of work, the main conundrum is that why are working hours more or less stuck at a specific point? Friedman’s paper offers a few explanations, but there are many things that need to be discussed and explained. For example, another related paradox is that why do rich people work as many hours as the poor despite having no need for it? I am talking here about the ones who have earned through hard work, and not rent seeker type rich folks. There is no concise answer to this question. Explanations now mostly concentrate on psychology (they feel unfulfilled when sitting idle) to sociology (they want to be socially well-recognised).
Whatever the explanation, vexing questions like these require more research.
The writer is an economist and can be reached on Twitter @ShahidMohmand79