ESSA

ESSA

A twist on labour economics: time inequality


Daniel Tan

By

May 5th, 2014


In another largely theoretical exercise, Daniel Tan examines lifespan inequality and how income inequality ties in closely with the way we use our time.


In the 2011 movie In Time, time is the new universal currency; much like money, people can spend it. However, people rely on it not only for transactions but for life itself, dying when, and if, their time runs out. In this dystopian future, the world, and society itself, is divided into ‘time zones’ according to wealth, and inequality runs rife. While death is an ever-imminent possibility for the poorest, the rich are virtually immortal, having accumulated millions of years ahead of them. The main reason this remains one of my favourite movies is that it is a bold and novel representation of the economic inequality that has almost become a byword for this decade.

Now it seems that In Time’s parallels with reality strike deeper than just that. Recently, the Wall Street Journal reported that richer people do actually possess more time, so to speak. Comparing people born in 1940 against those born in 1920, the richest 10% can expect to live an extra 5.9 years for men, and 3.1 for women. In contrast, the bottom 10% of men would only have 1.7 years in added longevity, while among women, lifespans actually shortened by 2.1 years.

This is a concern because, as the Brookings Institution explains , widening longevity gaps would mean that welfare payments in the form of pensions would instead benefit the affluent who enjoy longer retirement. And so the vicious cycle repeats.

Let me state here that, strictly speaking, there is no direct way to equalise lifespans, except in ways that are probably unethical. So it seems we have to deal with income inequality first.

While it is clear that being rich brings with it access to private healthcare which then lengthens one’s life, I will attempt to explain how inefficiencies in the way we use our time have brought about inequality.

But first, a few explanations about the ‘Market for Hours in a Day’.

The Market for Hours in a Day: Before the 1900s

As in all cases, firms’ demand for work hours would decrease as the hourly wage increases. At lower wages, workers are less skilled and thus ideal for labour-intensive purposes; a rise in wages would cause firms to cut back on the number of work-hours demanded . At the other end, higher-skilled and specialised labour is harder to come by, and firms would not be as willing to slash demand upon a wage hike.

In the less regulated work conditions before the 1900s, work was pretty much what everyone did, the main (even sole) purpose of which was to earn money. Under such conditions, it could be assumed that the objective of workers would be to attain a decent level of income, which put food on the table, children in school and generally allowed for a comfy life.  (refer to Fig. 1 below). Workers would not  supply many more work-hours than they actually had to (the income effect), and thus  market supply was largely  in line with decentincome. The peculiar shape of this supply curve matches demand well, and work occurs.

Change #1: High price for going over the eight

So what has happened since then? Firstly, most countries have adopted the 40-hour workweek (or less), equivalent to five working days of eight hours each.  This sets a higher price for every hour of work-time supplied over eight hours (overtime),  causing firms to reduce demand, as shown below.

As a result, workers who ordinarily need to work beyond 8 hours would be hard-pressed to find such work, and the only way to earn ‘decent income’ would be to enter a higher pay bracket.

Change #2: Higher skills wanted and Liking your Job

Moreover, as The Economist highlighted not too long ago, the demand for knowledge-intensive jobs has risen, and so has job satisfaction in such positions, which would typically pay more for obtaining well-educated labour. Indeed, the percentage of college-educated Americans working over 50 hours has increased, while the reverse has happened for college dropouts. Besides, supply of work time is also rising among the rich, resulting in a situation where higher-paid and more educated workers are working longer, and in fact even retiring later, as noted by Professor Daniel S. Hamermesh in his Downing Lecture delivered at Melbourne University last year.

To summarise, the higher-paid are living longer, but working longer too. Sounds like time-use equality, even if perfect time equality is not achievable. So why is that a problem?

Leisure vs labour

In his lecture, Professor Hamermesh raised the notion of having time not only to earn, but also to spend money. In the 18th and 19th centuries (Figure 3), where the average worker in England worked 65 hours a week (around 9 hours a day) ,  the low-paid worker  would have had less leisure time to himself, and thus less time for spending more than what was absolutely necessary. Indeed for the first 70 years ofthe Industrial Revolution up to the mid-1800s, consumption in England  hardly increased when adjusted for leisure time lost. The high-earner, on the other hand, had ample time to spend his riches away, and this could have  evened wealth out somewhat.

In these times, ironically, the low-wage earner has less opportunity, all else constant, to earn decent income given that his work-time supply is constrained by the 8-hour bound. If the decent income curve is interpreted as a minimal spending curve, we see from the diagram on the right above that by working more, not only are the higher-paid earning more income for discretionary spending, but since, as Professor Hamermesh points out, they have less time to actually spend it, their net worth continues to pile up and therefore worsens the very wealth inequality we try to prevent. On the other hand, lower wage-earners might have guaranteed leisure time, yet little money to increase their personal satisfaction with.

So, considering that the only way to equalise lifespans is to equalise wealth, the solution seems to be to ask the higher-paid to work less, or the lower-paid to work more. Apart from the arguments of sacrificing perfectly well-skilled labour, I envision little support for this proposal. The former would resent restrictions on their right to work, and the latter the erosion of their hard-won right to leisure time. With some economists advocating a 21-hour week nearly halving current work times, it might be worth pondering if further straightening-out of the work-supply curve would be such a good idea, and if maximum work times really are such a boon to the working class as they believe it to be.

 

A parting note of caution: This article and its assertions are largely theoretical. Readers might be interested to note that in actual fact, inequality in England increased over the Industrial Revolution, as found by economist Peter H. Lindert, among others.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

Founding sponsors

 

 

Partner

Gold sponsors

 

 

Silver sponsors

 

 

 

 


Affiliates