In his 1930 essay 'Economic Possibilities for our Grandchildren,' John Maynard Keynes theorized that over the next century, technological progress would increase societal wealth eightfold. He predicted this would solve the 'economic problem'—the basic struggle for subsistence—and enable people to satisfy their material needs by working only about 15 hours per week.

Keynes's 1930 Prediction on Technological Progress and Leisure

An influential economic treatise by John Maynard Keynes, published in 1936, which includes a notable critique of Arthur Pigou's book, 'The Theory of Unemployment'. The ideas within the book were refined with feedback from a small circle of economists at the University of Cambridge, which included Joan Robinson.

Keynes's General Theory (1936)

John Maynard Keynes was an influential British economist. In a 1930 essay, he made significant predictions regarding the long-term economic effects of technological advancements on society's wealth and work habits.

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Economic progress, leading to higher wages, presents individuals with a choice between increasing their consumption of goods and enjoying more free time. Historically, people have opted for a combination of both, though the specific balance chosen varies significantly across different countries. This trade-off is central to understanding long-term changes in working hours and living standards.

Trade-off between earnings and free time

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CORE Econ - The Economy 2.0: Microeconomics

Consider a scenario involving a worker in New York who earns an hourly wage of \$15. By working a standard 40-hour week, their total weekly earnings amount to \$600. Given that there are 168 hours in a week, this work schedule leaves the individual with 128 hours of free time to be allocated to non-work activities like leisure and sleep. This example establishes a baseline for analyzing decisions about time allocation.

A Worker's Weekly Time and Income Allocation

During the 20th century, American workers experienced a more than sixfold increase in hourly earnings. In response, they chose to reduce their average annual working time by slightly more than one-third. This decision resulted in a significant rise in both material wealth and leisure: they enjoyed a fourfold increase in annual earnings for purchasing goods and services, alongside an increase of nearly one-fifth in their available free time.

American Work-Leisure Choices in the 20th Century

Annual free time is quantified for economic comparison by taking the total number of hours in a year and subtracting the average number of hours an individual works annually. This method provides a clear metric for non-work time.

Calculating Annual Free Time

This dataset, presented as a scatter plot in Figure 3.2, displays the relationship between a country's income and the average annual hours of free time for its workers in 2020. Free time is calculated by subtracting average annual working hours from the total hours in a year. The data highlights significant cross-country differences in the trade-off between income and leisure. The data for this figure is sourced from the OECD, specifically its data on 'Average annual hours actually worked per worker' and 'Level of GDP per capita and productivity', accessed in January 2022.

Annual Hours of Free Time and Income per Worker (2020) [Figure 3.2]

Since 1870, many nations have seen substantial growth in living standards. However, this economic progress has resulted in different outcomes for working hours. In some countries, people work similar hours as in the past but have higher consumption, while in others, they have gained significantly more free time. This raises the question of why these different paths in the work-leisure trade-off have been chosen.

Divergence in Work-Leisure Choices Amidst Rising Living Standards

This example sets up a work-leisure choice. It considers an individual who works 40 hours per week at a wage of \£20 per hour. Their free time is calculated as 128 hours per week (168 total hours minus 40 work hours). The scenario then introduces a hypothetical 25% increase in the wage rate, prompting the question of how the worker might adjust their hours if they wish to keep their total weekly income unchanged.

Work-Leisure Calculation with a Potential Wage Increase

This dataset, presented as Figure 3.1, illustrates the relationship between the annual number of hours worked and GDP per capita for the United States, France, and the Netherlands over the period from 1870 to 2018. The data allows for an analysis of how these countries have navigated the trade-off between increased income and more leisure time. Data sources include the Maddison Project Database, studies by Huberman and Minns on historical work hours, and the OECD Productivity Database.

Work Hours vs. GDP in the US, France, and Netherlands (1870-2018) [Figure 3.1]

In economic models of individual choice, income is not typically considered an end in itself. Its value stems from its function as a means to achieve consumption. Individuals desire income because it allows them to purchase goods and services—such as food, accommodation, and leisure activities—that contribute to their overall well-being and satisfaction.

The Purpose of Income: Enabling Consumption

This example features Karim, a graduate who must decide his working hours given a specific wage. He faces a trade-off between consumption and free time, with his options limited by his wage constraint. This scenario illustrates key economic ideas like scarcity and opportunity cost. It also serves as a clear instance of an individual decision-making model, where Karim's choice is independent of others' actions and is therefore considered a non-social, non-strategic interaction.

Karim's Work-Leisure Choice (Figure 3.3)

In the context of work-leisure economic models, 'free time' is defined as any time that is not spent on work-related activities. It is calculated as the total time available to an individual minus their hours of work.

Free Time in Work-Leisure Models

This scenario illustrates a work-leisure decision for a recent university graduate. The graduate is offered a job with an after-tax wage of £12.50 per hour and is required to work 40 hours per week, which results in 128 hours of free time. The graduate expresses that this specific combination of work and leisure is their ideal choice, indicating that at this wage, 40 hours of work represents their optimal balance between income and free time.

Graduate's Optimal Choice of 40 Work Hours at £12.50 per Hour

John Maynard Keynes

Following the abolition of slavery in the production of cotton and other crops in the southern United States after the American Civil War in 1865, formerly enslaved people exercised their new freedom by choosing to work significantly fewer hours than they were forced to previously.

Effect of US Slavery Abolition on Labor Hours

Since indifference curves, which represent individual preferences, cannot be measured directly, economists must infer them. This is done by analyzing the observable actions of individuals, such as their choice of working hours, and assuming these choices represent their preferred outcome. This method provides a 'best guess' of underlying preferences based on observed behavior.

Inferring Preferences from Observed Choices

The Organisation for Economic Co-operation and Development (OECD) is an international organization that provides key economic statistics, such as data on average annual hours worked per worker and household disposable income, which are used to analyze economic trends.

Organisation for Economic Co-operation and Development (OECD)

A 2007 academic paper by M. Huberman and C. Minns, titled 'The times they are not changin’: Days and hours of work in Old and New Worlds, 1870–2000', was published in the journal *Explorations in Economic History* (Volume 44, Issue 4, pages 538-567). This study serves as a significant source of historical data regarding working hours in various countries.

Huberman and Minns (2007) Study on Historical Work Hours

Robert Fogel was an economic historian who researched long-term trends in labor. He is noted for his estimations of total lifetime work hours, which adopted a broad definition of work that includes unpaid labor like commuting and housework.

Robert Fogel

Economic historian Robert Fogel estimated total work hours from a lifetime perspective, including past trends and projections for the future, such as for the year 2040. His comprehensive measure of 'total work' includes paid work, commuting, and housework, providing a different analytical lens compared to traditional data which focuses only on the paid work hours of currently employed individuals.

Robert Fogel's Concept of Lifetime Work Hours

A significant consequence of the technological revolution is the substantially reduced role that work occupies throughout an average person's life in modern economies. This major societal change, which Robert Fogel correctly identified, is characterized by trends such as people starting their careers later, retiring earlier, and working fewer hours annually.

Technological Revolution and the Declining Lifetime Role of Work

Figure 3.15 is a dataset that illustrates the trend of annual working hours for non-agricultural workers in many countries, particularly during the twentieth century. The overall data spans from 1870 to 2017 and shows that while working hours generally decreased, significant differences exist between nations. A key feature of the figure, which is split into two charts, is the inclusion of the UK in both to serve as a benchmark for comparison between the different groups of countries. The data is sourced from Huberman and Minns (2007) and the Penn World Tables 10.0.

Annual Working Hours for Non-Agricultural Workers (1870–2017) [Figure 3.15]

The typical working hours in a society are determined by a combination of economic, political, and cultural factors that shape worker preferences. These preferences are expressed indirectly through various channels, including individual choices in the labor market, collective bargaining by trade unions, government legislation, and prevailing cultural norms. The interplay of these influences can lead to surprising trends in work-leisure choices over time.

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