The Productivity Dividend for Dummies: Raising Pay While Working Less

February 12, 2013

I am greatly pleased to see such interest in CEPR’s recent report on work hours and climate change.  All evidence points to the idea that gradually reducing annual labor hours per worker will reduce the amount of climate change with which the world will have to cope.  But this does not mean that ordinary workers will have to make a sacrifice.  Rather, this is about how workers may choose to enjoy the fruits of increased productivity—if only they are given the chance to share fully in economic progress.

Throughout the 1950s, workers in the United States enjoyed fewer hours of labor than almost every country in Western Europe.  On average, an employed American worked 1,909 hours in 1950.  Only Sweden—at 1,871 hours—worked less.  By contrast, Greeks averaged 2,712 hours that year; the Irish put in 2,753.

Today, workers in Greece are second only to Poland for the longest working hours in all Europe and labored 330 hours longer in 2012 than their American counterparts.  However, productivities of these countries have climbed dramatically since 1950 as hours have fallen.  In each hour of work in 2012, each American produced 3.2 times as much as in 1950.  This allowed workers to build 2.9 times as much in each year— and do so in 200 fewer hours than in 1950.  In this way, American workers labored a bit less and still prospered materially.

These same Americans might have enjoyed a little more time off and still produced far more than did workers in 1950.  Over those same 62 years, the average French work-year fell by 684 hours and still workers produce 4.7 times as much in a year.

Of course, this broad prosperity of increased consumption and less labor is much less true for ordinary Americans.  According to the Bureau of Labor Statistics, the real hourly wage for nonsupervisory and production workers rose only 6.5 percent between 1972 and 2012—less than 0.16 percent per year.

Even life expectancy gains have been unequal.  The gap in life expectancy at age 65 between male workers in the top half of the distribution of lifetime incomes and those in the bottom half grew from 0.7 years to 5.3 years over the course of just three decades.  The two-year increase in retirement age for Social Security more than erases [PDF] the 1.3-year increase in life expectancy seen by these lower-wage workers.

Doubtless, it is ridiculous to ask workers who are not sharing fully in the prosperity offered by today’s economy to accept fewer hours and smaller paychecks.  Rather, ordinary workers should see both fewer hours and larger paychecks.  Suppose that in the year 2100, workers can produce 2.6 times as much as they could in 2010.  Why not work only four days a week and produce “only” twice as much?

Of course, this would depend on workers sharing in the economic gains.  That means restoring the economy to full employment.  That means ensuring that high and rising health care prices do not overwhelm the economy.  That means breaking government-enforced monopolies by reforming patent and copyright law.  That means shifting our decades-long focus pressuring factory workers to make do with less to instead increase competition in high-paying fields of medicine, law, economics, management, and in the very-highly compensated financial industry.

When economic gains are shared broadly, there is no reason prosperity cannot include significant reductions in work hours as well as material improvements.

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