The paradox of work

When it comes to making the wrong predictions, the science and art of economics has its fair share of such instances, just like any other academic field. The recession of 2008 and the rock bottom oil prices are two recent examples. The predictions of the majority, in these instances, were just the opposite. But other examples abound. One of the most famous predictions was made by, arguably, the most famous economist of the 20th century, Lord John Maynard Keynes.

In a 1930 essay, ‘Economic possibilities for our grandchildren’, Keynes hypothesised that the nature and hours of work would change drastically. Within a century, he ventured, 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 be 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 changed. Human capital is more developed than ever and the pace of technological advances is breathtaking, but working hours seem to be stuck at a point rather than declining with productivity. So what gives?

There are a few possible answers to this conundrum in the research of Harvard economist Benjamin Friedman, who was also puzzled by the non-increase of leisure 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 was centred around the attractiveness of the work place because people get to realise effective opportunities to socialise, make new connections and know more about others, which would help them gain a social and financial advantage.

In short, he had to discard both of these possibilities because the data did not support these assertions. But a third possibility proved more convincing and was backed by data: that the majority of the people are just not wealthy enough to work less. Turn this statement around, and it means that there is a high inequality in terms of income, which leaves people stuck at the same number of working hours. But wait! Didn’t the data show that productivity had increased almost eightfold since the time of Keynes? Yes it does.

But here is the important finding: the gains from this eightfold 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 misérables’ of Victor Hugo, share a tiny fraction of the fortune that accrues due to productivity improvements.

What Friedman found through his research is very 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 have always had a healthy disregard for the practice of averaging data because this tends to mask important differences and trends. The productivity increase per worker is an aggregate number that hides the differences in productivity of the 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 that 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, which is left out 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 finds a source of 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 proportion of Pakistan’s working labour force.

Technological unemployment is another aspect of this debate, albeit it is a darker one. Keynes’ suggestion was reflection in the idea that automated systems (like robots) will do the work that humans did, leading to technological unemployment. He was optimistic in thinking that such unemployment effects will be evenly distributed because the wage rates would be the same and the 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 sit around and enjoy their leisure time.

So, in terms of the paradox of work, the main conundrum is: 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 have yet to be discussed and explained. For example, another related paradox is why rich people work as many hours as the poor, despite having no need for it. I am talking about those who have earned their wages through hard work, and not the rent-seeking kind of rich folks.

There is no concise answer to this question. Explanations mostly concentrate on psychology (they feel unfulfilled when sitting idle) and sociology (they want to be well-recognised in society). Whatever the explanation, vexing questions like these require more research.

The writer is a freelance contributor.

Email: shahid.mohmand@gmail.com

Twitter: @ShahidMohmand79