Conference on The Future of Work, Employment and Social Protection
Annecy, January 18-19, 2001
Mr. Freeman, Richard B.
Director
Labour Studies Program
National Bureau of Economic Research
Harvard University
1050 Massachusetts Avenue
CAMBRIDGE, MA 02138
U.S.A.
Working to Live or Living to Work?
There are two competing visions of the future world of work.
The Live To Work (LTW) vision is associated with the substitution effect of neo-classical economics. It holds that
economic change raises incentives, which increases the marketization of activities, increases hours worked, limits
economic security and creates high inequality. Increased marketization? Long hours? Little security and high inequality?
A workaholic's vision of paradise -- the US circa 2000.
The Work To Live (WTL) vision is associated with the income effect of neo-classical economics. It holds that rising gdp
and living standards will reduce hours worked, increase workplace amenities, improve economic security, and limit after
tax inequality in earnings. Less work time? More security and amenities? Limited inequality? Sounds like the EU ideal
world of work - la belle vie, circa ??.
When I was first asked to give this talk, I intended to give an LTW talk - an extensive hour with high-powered
mathematics and graphics, but Peter Auer said, remember you're in France, and we intend to have lunch not McBurger's
gobbled at the counter. Just 15 minutes - a WTL talk. All right. I will forego the deep mathematics and tables and
diagrams and will lay out briefly the LTW and WTL visions before considering which factors will determine how they may
fare in the next decade or so.
1. THE LTW WORLD A cartoon showing two Americans bragging about the US being No 1. "We've surpassed Japan!"
The reference is to the ILO's Key Indicators of the Labor Market, which reported that US workers put in two weeks more
than Japanese workers, and 4-6 weeks more than EU workers
The LTW world has four distinctive characteristics:
1. Everyone works, including most women, even those with kids less than 2 years, high school students, etc. As a result,
consumption involves buying market goods rather than leisure.
2. There is limited social protection, with social benefits tied to work. Protection comes from full employment; voluntary
private sector.
3. There is great inequality, which produces the high incentives tournament model - stock options, profit-sharing, etc -
and insecurity necessary to induce lots of work
4. Labor unions are weak so that workers have no way to deal with Prisoner's Dilemma rat races in the labor market.
At its best, this is the world of shared capitalism, where employees have a real stake in their company and everyone
contributes and benefits from success. The world of participation and ownership that EU has endorsed in its PEPPER
reports.
At its worse, this is an insecure rat race, where employees work long hours for fear of losing their job, and hope of winning
the big promotion or salary increase. It is NOT just that low paid unskilled sweatshop workers put in long hours. In the
US, Phd biological scientists, aged 30-35 work 60+ hours in laboratories for $25k, with no health insurance. They are
called post-doctorates.
LTW has a consistent logic. It combines high incentives and inequality to create supply pressures for hours of work It fits
a society with highly unequal skills. It has developed in US in response to changes in technology, trade, and institutional
developments that this conference will discuss.
2. THE WTL World. A cartoon showed two Europeans at a coffee shop. "That's a great idea! You can make a mint."
"Not till September. I've got my holiday."
The four critical characteristics to the WTL world are:
1. Hours worked are limited; people take long vacations. It's France, legislated work-sharing; Germany, Kohl's "leisure
park"; Holland, with part-time full employment; Sweden, 6 week vacations and long maternity benefits. Consumption
spending takes the form of time more than of goods.
2. There is national wage-setting, so that pay differs little among firms; and extensive social protection, so that the jobless
are not that much worse off than the employed. This reduces the incentive for long hours.
3. Joblessness persists for long periods, as workers have job security and low mobility.
4. Strong labor union institutions give workers the ability to make collective decisions
about division of work, pay, and other labour issues.
At its best, this is a world where security generates risk-taking and where leisure generates stronger families, limited hours
produces deep insights and labour-saving innovation.
At its worst, this is a world where the employed guard their positions against newcomers, which makes entrepreneurship
costly, and where the young remain in their parents' homes for years while they wait for the good job.
WTL also has a consistent logic. It combines job security for the employed and low inequality; a secure but less rewarding
economic life. It fits a society with highly equal skills. It developed in the EU in response to social democratic vision,
recovery from WWII, and institutional developments that this conference will discuss.
If LTW or WTL produced greater productivity per hour worked or greater growth of productivity over the long term, one
system would likely dominate the other. But in fact hourly productivity seems quite similar. Productivity per capita is
higher in the LTW world, but leisure per capita is higher in the WTL world. In the full employment 1960s-1970s, when
EU countries were catching up to the US, the WTL model looked good. In the 1990s, when the US has enjoyed full
employment while the EU has not, the LTW model has looked better.
3. How will these two models fare in the next decade or so?
The answer depends on: the ability of the two modes of work to provide full employment;their performance in periods of
full employment; their performance in periods of unemployment; long term rates of technological advance
3.1 Most analysts today say that the US LTW system is more likely to create full employment. But until 1980s/1990s the
WTL had lower unemployment; and as the US economy has weakened and EU has improved, some observers have begun
to see a return to the earlier period. But two factors argue for continued US edge in employment. The shift of jobs to
services, and the concentration of job growth among women, where the WTL EU has been slow to adjust. On the other
side, employment depends on investment, which could suffer greatly in US because of high foreign and personal debt.
3.2. In periods of full employment, the LTW model has some advantages. It is better able to deal with the problem of an
aging population and publically funded pension system by expanding the time worked by aging workers. It eliminates
welfare problems at no fiscal expense. And it raises wages for all workers. The lesson of 1995-2000 US is that Full
Employment trumps trade, biased technological change, etc that economists have used to explain the problems of the past
two decades.
3.3 In periods of economic troubles, the WTL model has advantages. It is better able to deal with poverty and
unemployment and to stabilize aggregate economic spending. It is likely to do better in productivity growth in such
periods as well.
3.4 There are reasons to believe that a workaholic society will beat a belle vie society in the modern knowledge economy.
If LTW scientists/engineers/entrepreneurs put in more hours than their WTL peers, surely their firms will do betters. But ...
living on the edge can produce disastrous breakdowns (vide California energy crisis) ... and egalitarian distributions can
lead to more rapid adoption of technologies. Sometimes, moreover, reflection does better than brute force. The fact that
US and Scandinavia are in the forefront of Internet Economy suggests that both WTL and LTW can lead the modern
technological revolution.
Perhaps a leisurely lunch will produce better ideas and discourse than the hour talk Peter told me not to give. Perhaps ...
but let me remind you that McDonald's is growing more rapidly in the EU than in the US! And that there could be sizable
first-mover advantages in the modern technology.
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