The economics of partying too hard

What is the difference between work and leisure? A distinction based on paid and unpaid activities is incomplete. A better distinction is between activities we want do and those we don’t enjoy. But this is also inadequate. Childcare can be something we want to do, it can be hard work, and also paid employment. Apparently, you can even party too much.

Many activities fall into the same category as childcare. Classifying a given activity as work or leisure may not succeed because it often depends on who benefits – your children, or someone else’s – and how many hours of work are required. Diminishing marginal utility turns many activities from a pleasure to a chore.

It follows from this that work is not the same as employment, which is clearly defined as a paid activity, usually carrying contractual obligations. Formal employment – having a job – usually encompasses sets of activities. Leisure may be even harder to define – if it is simply things we do voluntarily, without being paid, it encompasses lots of activities we would describe as work, and given the choice, we wouldn’t do.

There are important implications from these very simple observations. It bears on the economics of the labour market, and the debate about robots. The basic microeconomics of labour markets is relatively precise but reflects these analytical limitations. It assumes that there are two distinct sets of activities, those we ‘want’ to do, and those we don’t want to do. It assumes they are separable. Wages are an inducement to do things we don’t want to do. There are huge problems with this framing of the problem, some of which are very well rehearsed. Much of the work in this area has tried to explain why wages are unlike other ‘prices’, and in particular the resistance to nominal declines. A classic example would be the efficiency wage literature which recognises that wage levels can motivate.[1]

The obvious objection to the standard micro-model is that most people want to work. Human motivation is not as simple as saying ‘I want to do this activity because it will give me money’. Work carries status, can give people stability, allows people to plan – or not. Many jobs combine satisfying aspects with unpleasant tasks. People’s happiness at work can fluctuate for lots of reasons unrelated to wages, often to do with their colleagues. To the firm, wages may be prices, but in a fundamental sense, they are not to the recipients. Microeconomics also usually assumes a continuous option to substitute hours worked for hours of leisure. But employment is not like this. It is embedded – organisationally and administratively – in our lives. People plan on the basis of their income, they acquire liabilities. Firms fix contracts, or make them flexible, often they don’t really employ on a per-hour basis.

For these reasons, I have argued before that labour supply curves can have perverse shapes, and in certain circumstances declining nominal wages can increase the supply of labour. Keynes was absolutely right: lack of nominal wage flexibility is usually not the cause of cyclical unemployment.

Unpaid activities that people don’t enjoy also get done. Standard economics can’t explain this. Of course, if you define ‘want’ via revealed preference – we ‘want’ to do everything we do. This is either tautology or wrong. We have to do lots things we don’t want to do – life comes with sets of tasks, not with divisible ‘work’ and ‘leisure’.

How might all this bear on the robot debate? I am strongly of the opinion that only luddites fear robots. Particularly, as ‘robot’ is really just shorthand for continued technological progress. The simple point remains that in advanced economies there is more technology deployed than at any other point in human history and simultaneously the number of hours worked (in paid employment) is also the highest in history. Far from there being a correlation between degree of technological advancement and unemployment, the opposite seems more accurate: economies with high rates of diffusion seem to have very low unemployment.[2]

So the robot debate must be reframed. Think of all the things you have to do, either in paid employment or in unpaid life, which you don’t enjoy doing. Let’s make sure we give those tasks to the robots.

What if robots start doing the things we enjoy? The evidence so far is that we love them as partners in games. They are also expanding the scope of our social lives, although the effects are mixed. Perhaps AI is the real threat, if computers either prove that our cherished beliefs are nonsense, or if they start doing all the thinking for us. There again, to paraphrase Thomas Edison, people will go to great lengths to avoid thought.

[1]The classic empirical work on the complexity of wage setting is “Why wages don’t fall in recessions” by Truman Bewley.

[2]Consider this ranking of countries by unemployment rates. Singapore is the developed country with the lowest rate of unemployment, Spain has the highest. At best, higher technological diffusion reduces unemployment, at worst, it is irrelevant, and other factors – cyclical demand-management or labour market structure – are dominant.

About The Author

Eric Lonergan is a macro hedge fund manager, economist, and writer. His most recent book is Supercharge Me, co-authored with Corinne Sawers. He is also author of the international bestseller, Angrynomics, co-written with Mark Blyth, and published by Agenda. It was listed on the Financial Times must reads for Summer 2020. Prior to Angrynomics, he has written Money (2nd ed) published by Routledge. He has written for Foreign AffairsThe Financial Times, and The Economist. He also advises governments and policymakers. He first advocated expanding the tools of central banks to including cash transfers to households in the Financial Times in 2002. In December 2008, he advocated the policy as the most efficient way out of recession post-financial crisis, contributing to a growing debate over the need for ‘helicopter money’.

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