Do workers work enough? International comparison of working hours and wage disparities

Professor Annette Bernhardt Soc 280E Malte Nyfos Mathiasen University of California at Berkeley

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Do workers work enough? International comparison of working

hours and wage disparities Malte Nyfos Mathiasen


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Table of Contents

Abstract .......................................................................................................................................... 2

Introduction ................................................................................................................................. 3

Research question ......................................................................................................................... 5

Literature review ........................................................................................................................ 6

Work and leisure concepts .................................................................................................................. 6

Economic explanation ........................................................................................................................... 8

Legislative explanation ......................................................................................................................... 9

Institutional explanation ...................................................................................................................... 9

Empirical evidence .................................................................................................................. 10

Conclusion and discussion ................................................................................................... 13

Literature ................................................................................................................................... 14

Abstract

The paper reviews existing literature on working hours and historical trends

since the 1970s for selected OECD countries with a focus on the United States. In

United States there exist data showing that the hollowing of working hours especially

happened for the middle and lower deciles of the population.

I investigate some of these results related to the hollowing of the middle class

in other country cases and arrive to the conclusion that cross-country comparison with

fever cases and more detailed national dataset might be advantageous to consult to

move forward with research on the relationship between working hours and inequali-

ty.


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Introduction

John Stuart Mill foresaw in his ‘Principles of the political Economy’ from

1848 that the economy would soon approach a ‘steady state’, where needs would be

met and working time reduced. Bertrand Russel praised idleness and time for more

existential matters, such as art. Bourdieu studied leisure as a way the social and cul-

tural higher classes could distinguish themselves, and Hochschild studied how people

outsourced and commodified work, which generations before would be considered

domestic work or even just human activity. The boundaries of work and it’s meaning

have object for many conversations, but maybe most famously the economist Keynes,

predicted that his grandchildren’s generation only had to work three hours a day, and

in this style there has been many voices to tell us that the structure of working hours

might change fundamentally (Sullivan, O., & Gershuny, 2001: 7f). Many economists

have stressed the significance of technology and inventions, such as the Industrial

Revolution and today’s computerization and automatization, which can make jobs

that used to be integral part of society obsolete. In the last years this have sparked a

vivid discussion for the future work, where infamous economists such as Lawrence

Summers, Paul Krugman and Robert Gordon argue for the possibility of the end of

growth, while Bryjolfson and McCafee emphasize the opportunity to invent new mar-

kets (2012). On the short run this might lead to a loss of working hours in some indus-

tries or occupations, and in the longer run it can create a need for restructuring and

retraining of the workforce and work at such.

Another economist and sociologist Thorstein Veblen also emphasized the so-

cial nature of consumption in The Theory of the Leisure Class. He invented the con-

cept of the Veblen good, which is a good, where decreasing prices decrease people’s

preference for the good, because the status of the good decreases. Applied to working


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hours one might expect to find a Veblen effect, when the cultural status of leisure,

working hours and consumption changes Recently, economists such as Schor (1998)

and Bowles and Park (2005) have used applied his theory to account for working hour

disparities across OECD countries, which they find are unexplainable by incentive

effects.

There exist no correlation between high GDP or growth countries and longer

working hours. In fact, many developing countries have higher working hours but low

GDP and thus can be characterized as unproductive (Lee et al., 2007: 33). The rela-

tionship between high- and low-income countries, and their legislative, institutional

and economical structure might differ substantially and mediate the effect on working

hours differently. Therefore, I will only focus on selected OECD countries, which

tend to be more similar and the analysis can therefore partition out some of the under-

lying historical and structural reasons that make parts of the world very. Consequent-

ly, my analysis is only valid for the selected OECD countries and can to some extend,

all other being equal, be extrapolated to similar OECD countries.

In the European Union since the 1990s goods, capital, services and people

were guaranteed free movement. The internal labor market in the European Union

have increased the supply of labor and puts pressure on the wages and working hours,

especially as national restrictions were overruled in the 2000s and as a consequence of

the financial crisis and in the Western and Northern Europe with general higher wag-

es. The increased pressure on wages and working hours might be observable as a lag

of the flattening of average working hours in the 1970 U.S., which first is observable

in 90s EU. Contrastingly, Schor argues that the decline in American’s leisure is a de-

viation from the European trend. This invites investigations of the relationship be-


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tween working hours and wage disparities across different countries and income

groups.

Research question

How have weekly working hours evolved differently for high and low income employ-

ees in high-income nation states since the 1970s and which parallels can be drawn to

wage inequality?

The relationship between working hours and wage disparities is very disputable, but

Fligstein and Shins findings below in figure 1 intrigue the paper at hand.

Figure 1 U.S. distribution of working hours (Fligstein & Shin, 2004: 415)

Fligstein and Shin find that working hours have stagnated for the 1st and 2nd

hourly wage percentile in the period of 1977-2001. For the 3rd to 7th decile working

hours increased only in the 1990s but mostly follow the pattern of the 1st and 2nd per-

centile (though the data might conceal working hour differences from the 3rd to 7th

decile), while working hours have increased from 44 to 46 hours for the 8th and 9th

decile from the same baseline as the other deciles. We can here assume that high-


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income earners in the 8th and 9th decile mainly are managers and professionals. These

findings indicate that working hours especially tend to decrease for low wage worker

and their jobs become obsolete. But the findings are not complete and can partly be

explained by a very peculiar history of the hollowing of the middle class and emer-

gence of part-time on a need based jobs and service sector workers, who might expe-

rience other and new demands. Nevertheless, their findings are innovative and an in-

ternational approach can investigate, whether their theory is applicable in other coun-

tries. I therefore address my research question with an international comparison and

ask:

Have the distribution of working hours evolved differently in other developed nation

states?

Literature review The review starts out by describing some of the general concepts of working hours

and relates it to the chronology in the United States. Thereafter, I elaborate an eco-

nomic, an institutional and a legislative explanation, which I tend to find representa-

tive for my reading and assessment of the literature on working hours.

Work and leisure concepts Leisure is often treated as a residual of the time where workers do not work

and sleep. The amount of working hours therefore affects leisure very directly. Where

leisure tend to be hard to define, because the boundaries between work, social life and

leisure can be vague, working hours have a more clear and almost legalistic defini-

tion, as it is only the time you should be paid for at work (REFERENCE). Thus, work

that is not commodified, eg. domestic work, historically mainly handled by women, is

not put into the equation. This might explain why some developing and traditional

countries annual working hours are relatively low, because the work of women is not


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quantified. There also exist a division between workers, who are paid by the hour or

paid a fixed monthly or yearly salary. Some are paid to work overtime and some are

expected but not compensated. Therefore, I believe it might be reasonable to claim

that not all working hours are included, but the definition should include paid work

that are just ineffective or idle.

Another definitional question is whether to calculate working hours on a year-

ly or a weekly basis, and whether to include people only in employment or everyone.

To best represent how work is experienced at the workplace I find that people only in

employment better captures work as it is, for the people who work. The difference in

weekly and annual records consists in the amount of holiday and paid vacation a

worker obtain. Thus, it is both an effect of cultural, legislative and political frame-

works.

In the following I try to use annual records for people in employment, since

these data are most complete and easiest to compare between countries.

Juliet Schor describe how Americans in the late 80s were working 169 hours

more than in the late 60s, and if they had to reach their 1973 standard of living in pur-

chasing power, they had to work 245 more hours or 6 extra weeks yearly (1991: 81).

Hout and Hanley argue that the increase primarily comes from women entering the

labor market and women work 300 hours more (2003). The emergence of the dual

income family seems to be maybe the largest restructuring of the latter part of the 20th

Century labor market and thus affects the labor market substantially by raising the

supply of labor.

Since the Industrial Revolutions in 1870 to 1970 working hours have halved

from 3000 yearly to approximately 1500 hours. From 1850 to 1987 annual working

hours have decreased from to half the amount according to Schor (1991: 45f). Though


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many other scholars believe the historical data is very unreliable and tends to be less

reliable all the more we go back in time, it is to a commendable estimate, which have

resonated through academia. The newer tendency seems to be that working hours in-

ternationally seems have flattened since the 80s, though it still slightly decreases

(OECD, 2014).

The changing distribution of working hours among middle class blue-collar

jobs and management and professional white-collar jobs impact the hollowing of the

middle class through declining salaries since the 1970s. The hollowing of the middle

class is one of the most significant restructuring of work, which has widened the gap

in income disparities. The working hours affect this trend in the US by exacerbating

the disparity in income, because the high-income group both can take higher hourly

income and more hours, which not is option for manufacturing and service sector

workers, who hardly can maintain their working hours.

Economic explanation A classical economic way to understand working hours is to see it as a trade-off

between the employees’ relative preference for leisure time and higher earnings. In

this model countries with lower working hours tend to have an average preference

towards fewer working hours. OECDs evidence display that there is a correlation be-

tween a preference for leisure time and lower working hours, but it is very difficult to

prove that it is a causal relationship, and the preference existed before the disparity in

working hours. Another version of the argument is one that integrates differences in

real-wages. The middle class in some European countries might balance working

hours and leisure time differently than in the United States, because they by far less

work can afford the same consumption patterns and status. The social services and


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welfare system also vary from one country to another and mediate how much workers

decide to work and spend to maintain their social status (Schor, 1991: 23f).

Legislative explanation In many European countries paid vacation is either mandated by law or agreement

and constitutes four to seeks weeks off work (1991, Schor: 82)

Weak legislation in the US with no maximum for overtime hours can undermine the

statuary limit of 40 hours a week. Either strong inspections with arbitration and fine

could enforce the legislative practice, or the legislation itself could harsher penalties,

which did not consolidated incentives for employers to demand or expect workers to

stay for overtime work.

Compt time in the U.S and flexible working hours in a European context also

challenges the boundaries of working time and the work-life balance for families, alt-

hough it is sought after both by workers and employers. In general there is an imbal-

ance, where workers of high status seem to enjoy work more and desire work flexibil-

ity. Whereas lower status work often is physically tough and worker want stability

rather than flexibility (Ilsøe, 2007, 2010).

Labor and business’ history in some European countries also make them not

only bargain over wages but also working hours and set rules hat with or without gov-

ernment enforcement can maintain trust and compliance (Westergaard-Nielsen, 2008

19).

Institutional explanation

The density of labor union and their capability to influence politic and work-

place activities influence wages but also working hours. The employer have incen-

tives to make workers work longer hours, as they then create more surplus value for

the shareholder and profit for the managers (Western & Rosenfeld, 2011; Lin, To-


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maskovic-Devey, 2013). Hacker & Piersson describe the development since the 70s in

the U.S. as a hostile takeover by business, where influence by labor has been sup-

pressed (2010).

The globalization tend also to rise the supply of labor, as employers now can

move production and profit to a country, which have lower wages and maybe higher

working hours, and where the country’s government have a positive attitude towards

the company and do not pass on strict regulation (Freeman, 2006).

Veblen also describes the capitalist system as a system of conspicuous con-

sumption (1899), pointing in the direction of what other scholars have conceptualized

as a norm of growth economy, prosperity and consumption culture of today.

Empirical evidence There are no easy accessible way to cross-tabulate income defiles and working hours

over time. EUROSTAT, ILO, World Bank and OECD all provide aggregated data.

One step forward, which would take some time and maybe acquire researchers of dif-

ferent nationality, would be to link national datasets for different income deciles with

working hours.

I selected Australia, Canada, France, Germany, Greece, Japan, United King-

dom and the United States to have developed OECD countries similar to the United

States but also include regional variation with Japan, Australia and European coun-

tries and to have variation in capitalism and institutional and legislative welfare re-

gimes. Canada, Australia and United Kingdom are also selected, because they are

most similar and share some culture, language and institutions.

The data is retrieved from OECD and I have used the variables ‘Decile ratios

of Gross Earnings’ and ‘Average annual hours actually worked per worker’ from

1970 to 2012. Some data is missing, e.g. OECD only has data from Germany since

1991 and Greece since 2005.


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Figure 2

Figure 3

Figure 4

1200 1300 1400 1500 1600 1700 1800 1900 2000 2100 2200

1,2 1,4 1,6 1,8 2 2,2

Working hours

5th/1st decile

Working hours and 5th/1st income decile ratios

Australia

Canada

Denmark

France

Germany

Greece

Japan

United Kingdom

United States

1200 1300 1400 1500 1600 1700 1800 1900 2000 2100 2200

2 2,5 3 3,5 4 4,5 5 5,5

Working hours

9th/1st decile

Working hours and 9th/1st income decile ratios

Australia

Canada

Denmark

France

Germany

Greece

Japan

United Kingdom

United States

1200 1300 1400 1500 1600 1700 1800 1900 2000 2100 2200

1,4 1,6 1,8 2 2,2 2,4 2,6

Working hours

9th/5th decile

Working hours and 9th/5th income decile ratios

Australia

Canada

Denmark

France

Germany

Greece

Japan

United Kingdom

United States


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The trend line in figure 2 and 3 point in many different directions and indicate

that there are countries were lower working are associated with less inequality, and

countries were lower working hours are associated with higher inequality.

For figure 2 Germany distinguish itself by being fairly below average working

hours but move a lot towards more inequality in the period. In contrast the United

Kingdom seems to be the most stable country over the period for the 5th/1st decile.

For the 9th/1st decile there is an observable shift for Canada and United King-

dom that contrast the tendency for the 5th/1st decile. Here they tend to have larger ine-

quality as the working hours decrease. For Denmark and the United state, the coun-

tries with respectively the lowest and highest inequality rate, the trend appear to be

the same, so that lowering working hours led to larger inequality ratio.

The tendency in figure 4 is very clear. All countries indicate a decrease in

working hours and an increasing ratio in 9th/5th docile, thus in contrast to figure 2 and

3, all countries here have a negative trendline. As for graph 2 the United States have a

very long and flat trendline indicating a relative large shift in ratio for the 9th/1st dec-

ile from 3,7 to 5,2 and the 9th/5th decile from 1,9 to 2,4, which as been well empiri-

cally and theorized before, show how the 9th decile or even a few percent within the

9th decile (as the 99 % campaign but also scholars have argued) really have moved

from the rest.


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Conclusion and discussion

All countries move in a direction towards less working hours, though the rig-

orousness of the data are complicated by changing boundaries of work and leisure and

as new groups of worker, e.g. the women enter the labor force.

The covariation of decreasing working hours and rising inequality is observa-

ble in all the selected OECD countries but particularly evident, when we look at the

top and the middle class. This finding confirms Autor (2010) and others, who have

theorized the hollowing of the middle class. In this context one solution could be to

guarantee the working hours and supplied consumption pattern with an insurance or

policy framework for an exposed group of today’s working population. A possible

policy could strive to better distribute working hours among the whole population in

the long-term.

The problem with concluding anything stronger and argue for a connection on

the basis of eight OECD countries is that the period since the 70s have been very pe-

culiar for the selected countries. E.g. the United States has experienced a unique de-

cline for the middle class and a technical and global development, which still today is

difficult to evaluate quantitatively and richly contextualize across countries.


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Do workers work enough? International comparison of working hours and wage disparities