Thoughts on the US Work Week and Productivity

Output is a function of how many
hours are being worked and productivity.
Ahead of tomorrow’s US employment report, let’s
look closer at these two variables.  

The average weekly hours worked in the US has been fairly steady in
recent years
.  The average over the past year through March was 34.4 hours, and the three-year average is 34.5
hours.  The average over the past 10
years, which includes the Great Financial Crisis, is 34.3 hours.  

This is remarkable.  In
2000, the French government had controversially imposed a 35 hour work week
which was resisted.  Rather than
through the government, the US has achieved it in a decentralized non-statist

In 1930, Keynes wrote a short essay “The Economic Possibilities for
our Grandchildren.”
  He famously predicted that his grandchildren
might only have to work three hours a day
due to the further application of science (technology) to production.
   I ask in my new book, Political Economy of Tomorrow, “Aren’t
we Keynes’ grandchildren?”   

The debate over the labor market and how to increase full-time positions misses a key point. 
Just like modern businesses do not needs to vast sums of capital that used to
be required, the modern economy may simply not generate full-time positions in
line with the growth of the prime age (24-54) workers. 

The journalist Derek Thompson notes that in 1964, ATT was the largest US
company, with a $267 bln (in 2015 dollars) market cap and almost 760k
  In 2015, Google’s market cap was $370 bln, and it employed 55k workers.  

The number of prime-aged people
either working or looking for work has been trending lower since 2000. 

Men’s participated has been falling since the late 1970s.   If a gradual
and organic (as opposed to being ordered by the state) decline in hours worked
is one way that scarcity of work can be
. The decline in the participation rate is
another.   The drawback of letting market mechanisms drive the
process is that the results are not always optimal from society’s point of view. 

Moreover, reports suggest that although the Fed argues that full
employment is at hand, underemployment is a growing problem.
Businesses cannot use the full skill set its employees have
developed.     Research suggests that around 40% of new college
graduates have jobs that do not require a college degree.  

Growth in output per hour of work has slowed.  From 2007 through
2016, productivity rose about 1% per year. From 2000 through 2007 productivity
rose by nearly 2.6% a year.  In the 1990s, output per hour rose 2.2%
annually.  The US has created 7.8 mln jobs over the past three years, but
growth (GDP) has been mostly disappointing.   The US economy grew
1.6% last year, the weakest in five years.  

One of the themes of the Political Economy of Tomorrow is that
nothing fails like success. 
Businesses have succeeded in keeping labor costs down.  This could be one of the key reasons why
productivity growth is poor.  Business wants
to keep their wage bill down as they want to
minimize the cost of inputs and labor is understood as another input. 

One of the key drivers of productivity is technology or replacing human
effort with machines and smarter machines.
  A powerful incentive of
this is the relative cost of labor and technology.  By ensuring cheap
labor, businesses have less incentive replace people with
machines.    Real wage growth in the US has been minimal since
2000, and the real minimum wage is low relative
50 years ago.  

Weak wage growth means that it may be economical to hire people to
perform low productivity activity.
  Employment then expands in such
areas and lower the aggregate measures.  This
depresses capital investment and productivity.  

Productivity is not evenly distributed
through the economy.
  Work by two economists at the Brookings
Institution (Joseph Parilla and Mark Muro) found that large US cities and the
energy belt (oil, gas, and mining) had
the strongest productivity gains.  While small cities, especially in the
south and southwest were laggards.  The economists found San Jose,
California to be among the most productive urban centers.  Productivity
rose an average annual rate of 2.7%
between 1978 and 2015.  San Jose has high employment in R&D and STEM
industries.  These sectors account for 30% of the employment in San Jose
compared with 9% on average in the 100 largest cities.  

Parilla and Muro’s work about the geography of American productivity has
important implications for Europe.
  Economic theory suggests that
regional productivity will converge.  This
does not appear to be happening in the US, despite fiscal transfers, ostensibly
greater labor mobility, common language, etc.     

There is an unspoken idea in Europe that the kind of reforms that the EU
and creditor countries are insisting on will lead to convergence between the
south and north.
  There is a good
reason to question this assumption.  Note too that the poorest region in
the US remains the old South, that sought independence in the middle of the 19th
century.     Greece and Italy will never be like Germany
and Austria any more than Mississippi and Arkansas will be like Connecticut and

We know how to boost employment and productivity.  We recognize
that economic growth has proceeded by
fewer hours of work needed to produce the same amount of goods and services.
   We could rationally figure out a way to organize ourselves
accordingly.  Or we can let market forces distribute the scarcity in its
market logic which is taking a toll on
family structure and the longevity of middle age men.  We can boost
productivity by providing incentives, like higher wages, which will encourage the further deployment of
modern science and technology, but that could come at the price of the even greater scarcity of meaningful employment

We are Keynes’ grandchildren.  We can envisage of society that
has both more leisure time and greater productivity.  The main hurdle is
not a foreign country, like China or Mexico.  It is not about immigrants vs. “native” workers.  A major
obstacle arises from the success businesses have enjoyed in keeping labor costs
low and the ideological barriers that insist on the link between work in the
market economy and consumption.  


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