Work versus leisure

Back in 1930, J.M. Keynes predicted that within a hundred years, living standards in "progressive countries" would be 4-8 times higher and this would leave people more time to enjoy the good things in life. He further predicted that the working week would be drastically cut to 15 hours a week, with people choosing to have far more leisure as their materials needs were satisfied.

The first part of Keynes prediction was essentially correct. The living standard in Europe and the US is 8x times higher than it was in 1930 and we have 15 more years for living standards to get even higher by 2030.

However, the second part of his statement has not been realized. Per person "working hours" have come down a touch in the last 50 years but household "working hours" have gone up due to women's entry into the labor force. But regardless of how we count it, no society is close to the 15 hour work weeks that Keynes predicted.

Many people in the developed world could work a few hours a week, spend time with our loved ones, and pursue our hobbies. I would guess that many people would find this more attractive than our current equilibrium. One of the standard regrets from old age is having worked too much during their life and having spent less time with friends, family, and hobbies. So most of us are working too hard and will likely regret it, anywhere from a little to a lot, at the end of our lives. Yet, we continue to do so. Why?

One reason is that Keynes and economists may have underestimated how much utility humans get from working. For many it is part of their identify and defines a significant purpose in their lives. This leads to a question of the nature of the standard upward sloping labor supply curve but that is a conversation for another day.

Instead, I would like to focus on a second reason. I posit that having more leisure is likely most beneficial if our friends, family, neighbors, and communities also are taking leisure. So there is a network effect here. However, 15 hour work weeks are an unstable equilibrium because humans are fundamentally competitive. Imagine we were in a world where we all only worked 15 hours a week and spend our weeks blissfully as described earlier. Then one of our neighbors or siblings, or friends starts working 20 hours a week and buys a slightly bigger house and car and clothes and receives a promotion at work. My prediction: the 15 hour work-week would quickly unravel to the equilibrium we have today. Not everyone would have to be competitive for the 15 hour work-week to unravel. Even if only a small number of competitive people start working more, the reduced network effect can reduce the incentive for the others to maintain their leisure. Hence, income and its cousin consumption are positional goods because humans are fundamentally competitive and so the 15 hour work-week would not be possible even if it led to a higher utility.

One way to address the phenomenon of positional goods is to tax or cap consumption of that good. In a sense, this is what Europe has done. With their high income taxes and caps on weekly hours worked (though these caps can probably be skirted, i think they seep into the culture over time), Europe is trying to slowly move towards a Keynesian world. It is difficult to know what level of work maximizes utility but it is not necessarily true that societal welfare is higher in the US despite our higher incomes compared to Germany and France for example. Which equilibrium would you prefer? One where everyone works 30 hours per week and earns 60 cents on the dollar? Or one where everyone works 50 hours a week and earns a full dollar?