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Wednesday, July 23, 2003

Working Time

In microeconomics it is commonly assumed that labour is a normal good--more of it is consumed as incomes rise. This is sometimes used to explain the difference in per capita incomes between the US and Europe. While European productivity rates, (especially in France and Germany) have been high since the second world war, annual hours worked per capita since the mid-1970s are drastially lower than in the US. It can (and has, by Will Hutton, Adair Turner and others) been argued that the higher postwar productivity of Europeans have been used to "purchase" more leisure time, which they find welfare enhancing. The assumption of the normality of leisure is still questionable, though; the greater vacation time and family leave that Europeans enjoy has, in large part, been a matter of statute; to what extent have they chosen this outcome, rather than have it chosen for them by labour unions and symphathetic politicians? In a paper last year, Northwestern's Robert Gordon writes:

By definition, the remaining causes of Europe's low standard of living relative to its high relative productivity must be accounted for by some combination of a higher structural unemployment rate and a lower labor force participation rate. The higher unemployment rate in Europe is at least partly due to more generous unemployment compensation, and the welfare adjustment is not obvious. But part of the unemployment is related to laws that have lengthened vacations and shortened weekly work hours, making workers more expensive to employ. German firms are refusing to expand employment and capital investment in in Germany, preferring to invest in nearby formerly communist countries to the east and southeast, as well as such far-flung countries as Mexico, Brazil, and India.

The "purchase" of greater leisure time may have been cumpulsory, if somewhat indirectly and disguisedly so. Not that the European public (if it can be called that) is complaining.

Is this the end of the story, though? This week's Economist has an article (subscribers only) about the changing working-hours patterns in the UK. There is an apparenly decline in the hours worked by full-time workers, and this is only partly explained by the European Union's working time directive. An excerpt:

In October 1998, the EU working-time directive came into force in Britain. This set a limit of an average of 48 hours a week for most workers and gave workers the right to four weeks' paid annual holiday. The introduction of the directive neatly coincides with the start of the reduction in working hours. If it is responsible for the reduction in working hours, the decline may not be over. In August, the directive will be extended to cover more than 700,000 workers in the transport industry. Next year it will be extended to trainee doctors.

But Francis Green, professor of economics at Kent University, argues that the directive is neither the only nor the most important reason. He points out that the self-employed are also working fewer hours, even though the directive does not affect them.

It may simply be that people are now doing what they always wanted to do. Mark Taylor and Rene Boheim, both economists at Essex University, have analysed the working-time preferences of workers throughout the 1990s. A third of them consistently said that they wished to work fewer hours even if this meant a commensurate loss of earnings.

Why do people now seem to feel they can do that? Probably because, as unemployment has fallen over the past decade, they feel more secure in their jobs. It may have something to do with family life, too. As the balance of power in households shifts, men may be listening harder to women's demands that they should occasionally show up in time for the bed-time story; and as more women join the workplace, men are needed at home more than they were.

The government, by going on about the "work-life balance" may have helped persuade people that staying at home isn't necessarily skiving. Attitudes among graduates are changing. "They are less willing to devote life and soul to their companies in their early years," says Nigel Meager, deputy director of the Institute for Employment Studies.

The arguments may involve a bit of conjecture, and the timeframe is a bit short, but there does appear to be something of a discernable trend. Britons are finding that, if they can "afford" it (including any cost to job security) they will choose more leisure time, with leisure broadly defined as time not spent working. Choice is still not entirely clear; European governments, through employer sanction and public exhortation, are trying to influence preference formation, and there is no comparable control to suggest what would have happened without this. Generalising to the whole of Europe, this "choice" many have some interesting and unpredictable impications, especially given the dire demographic situation pointed out in the Economist's Charlemagne column. One wonders if European consumers know exactly what they're getting by taking so much time off.