ECON 130 Lecture 20(2).pptx

8/14/2019 ECON 130 Lecture 20(2).pptx

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Work and living standards Do rising living standards cause people to work more or less?

It will be very difficult to gather and interpret data on this

question.

An increase in the real wage (everything else constant) will

have a substitution effect that increases the labour supply,

and a substitution effect that reduces the labour supply.

Over time, as people get richer, they have more non-labour

income, which reduces the labour supply.

Over time (as they get richer), people tend to live longer,

which increases the labour supply.

Over time, the participation rate tends to increase; raising

both the labour force and the labour supply.


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Some data

Stiglitz and Walsh show the average weekly hours worked in

manufacturing fell from 59 hours in 1900 to 42 hours in 2000.

It is not clear if this data relates to individual workers or

manufacturing positions. It might be that the number of part-

time manufacturing positions has increased.

The US has a higher real GDP per capita than Europe because

Americans work more (productivity is roughly the same in

both regions). The take-home wage rate is higher in the US

due to lower taxes (and fewer social services). Surveys tend to suggest that rich people work more than poor

people; the higher your wage rate, the more hours you work.


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More data

It is estimated that, in 1880, the average male US household

head worked 8.5 hours a day (seven days a week?), while in

1995 they worked only 4.7 hours a day.

See Table 5

http://eh.net/encyclopedia/article/whaples.work.hours.us

Since 2003, the US Bureau of Labor Statistics has conducted

the American Time Use Survey. In 2003, a full-time male

employee worked 8.72 hours on an average weekday. By

2009, this number had risen to 8.75. For these few years, atleast, it appears that full-time workers did not work less.

http://www.bls.gov/tus/#tables
http://eh.net/encyclopedia/article/whaples.work.hours.ushttp://www.bls.gov/tus/http://www.bls.gov/tus/http://eh.net/encyclopedia/article/whaples.work.hours.us


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Labour supply

The number of hours worked per week does not tend to

respond too much to the real wage. A full-time job tends to

be about 40 hours a week.

The main impact comes from the timing of exiting and

entering the labour market.

When wages are high, I will be reluctant to exit the market (go

overseas, have children, retire), and keen to enter (come back

from overseas, having children, being retired).


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An experiment

Suppose you are currently employed for 40 hours a week, at

$20/hour. Suppose your employer allows to specify how many

hours you will work each week (from 0 to 60 hours). At

$20/hour, you choose to work 40 hours.

Suppose your wage is doubled, with all other prices fixed.

How many hours will you choose to work?

Suppose the wage is really increased, to $20,000/hour (all

other prices fixed). How may hours will you work now? My

guess is you would work at least 40 hours a week for the firstfew months. Once you have a few million in the bank, then

you will start to work less, maybe just ten hours a week.


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Experiment (contd)

If the wage increases enough, I will eventually start working

less. However, because I may be uncertain about how long the

high wage will last forit could be a mistakeI will work a lot

to begin withto build up my wealthand then work less.

We may see an increase in labour in the first few months,followed by a decrease.

Does it make a difference if all wages rise, rather than just

yours? Some people argue it is relative wages that matter, not

absolute wages. If all wages double (with goods prices fixed),everyone preserves their relative position and so we may see

no change in the labour supply.


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Working in the USA

40

42

44

46

48

50

52

54

56

58

60

1900 1909 1919 1929 1940 1950 1960 1970 1978

Hoursworked

Year

Average weekly hours worked in the US (non-student males, from

Robert Whaples' web article)


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Possible interpretations

In the US, from 1900 (and most likely earlier) till 1940, the

average hours worked per week fell significantly.

From 1940, on, hours worked have done very little, maybe

even increased a bit.

For a specific country, hours worked, plotted against time

could very well be U-shaped; early industrial development

causes hours worked to fall (and may well be connected to the

political strength of the union movement), while the later

development of service industries (as the country becomesricher) causes hours worked to increase a bit.


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Keywords

Hours worked

Hours worked per full time employee

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ECON 130 Lecture 20(2).pptx