Counter-Intuition 101: Why Recent Bad Economic News Means It’s Time for Working Less

The economic news of the last few weeks has not been encouraging. In Europe, the various national debt crises remain unresolved, with a continued monopoly of banker-friendly austerity programs, and their predictable consequences of rising unemployment and stagnation.

Debtor countries are being forced into the same financial orthodoxies that prolonged the depression of the 1920s and 30s, so we shouldn’t be surprised at the failures they will bring. More recession may also be the future of the countries enforcing these once-discredited policies, as weak demand across the region represses consumer demand, investor confidence, and government spending.

In the United States the details are different, but the main story is the same. The country is experiencing continuing mass unemployment (25 million Americans remain unemployed or underemployed), further collapse in the housing market, and an extremist political movement determined to slash all government spending directed at the people who are most likely to spend: the poor, the unemployed, and the middle classes. The outlook among wealthy countries is for more economic “weakness,” a conclusion supported by the plummeting stock markets of recent weeks.

Protecting bankers’ and creditors’ interests above all else is foolish economic policy. It enriches one group of people at the expense of nearly everyone else. But these days, it’s hard to get a hearing for the view that the wealthy countries can remain wealthy, that we can solve our economic problems without making most people worse off, and that we can also do it while addressing the much larger challenge we face: climate change and growing ecological devastation.

So what’s the alternative to slashing government programs, budget cutting, and more concentrated wealth at the top? 

The centerpiece of a new approach is to re-structure the labor market by reducing hours of work. That may seem counter-intuitive in a period when the mainstream message is that we are poorer than ever and have to work harder. But the historical record suggests it’s a smart move that will create what economists call a triple dividend: three positive outcomes from one policy innovation.

The first benefit of hours reductions is a significant reduction in unemployment. In the wealthy countries, many of the jobs lost in the 2008 downturn will not re-appear. The revolution in information technology has made many jobs unnecessary, raised labor productivity, and undermined a good swathe of the labor market, as firms introduce radical technological and product innovation. (And some of the jobs are being created in low-wage countries.) This is familiar territory, as it has been occurring since the 19^th century. The buggy and barrel makers are long gone. Toll takers and the workers in DVD factories are on their way out. So too are household tax accountants and retail check-out clerks.

Historically, market economies have absorbed this displaced labor in two ways. The first is the creation of jobs in new industries making new products. The 20th century brought automobile workers, higher education administrators, and medical personnel. But new jobs, spurred on by growth in GDP, are only half the story. The other mechanism for maintaining balance in the labor market has always been reductions in hours of work.

Without the advances of a shorter workweek, vacation time, earlier retirement, and later labor force entrance, the economies of the OECD would never have attained the “golden age” of high employment that prevailed after the 1930s depression. Between 1870 and 1970, hours of work fell roughly in half. These countries have re-balanced the labor market by re-distributing work to make its allocation fairer. We need shorter hours because it is unrealistic to count on growth in GDP to absorb all this current and future “surplus” labor. Rich countries just never grow that rapidly. So the austerity economics that says work longer and retire later has it exactly wrong.

But even if GDP growth could solve the unemployment problem, it shouldn’t, because the cost in greenhouse gas emissions is prohibitive. North America and Europe have already blown their carbon budgets, and until we re-structure energy systems, growth isn’t reconcilable with responsible emissions levels. Here too shorter hours of work provide a dividend. They are associated with lower ecological and carbon footprints. 

Countries that work more pollute more. That is both because their scale of production is larger (the GDP effect) and because time-stressed households and societies do things in more carbon-intensive ways than societies in which time is more abundant. Longer hours of work lead people to travel, eat, and live faster-paced lives, which in turn require more energy.

The third benefit of shorter hours is the time itself. As a growing movement of “downshifters” attests, short-hour lifestyles allow people to build stronger social connections, maintain their physical and mental health, and engage in activities that are creative and meaningful. Time is especially valuable in rich countries where material needs can be met for everyone, and deprivation is caused by mal-distribution of income and wealth.

So that’s the triple dividend: reduce unemployment, cut carbon emissions, and give people quality of life. Austerity economics says we can’t afford to work less. A serious reading of our economic history suggests we can’t afford not to.