Monday, 20 October 2014

This year’s economics Nobel is yet another triumph for the blackboard rather than the real world

*** This article originally appeared at the Conversation. I want to reiterate here that the article does not represent a direct attack on the work of Jean Tirole. Rather, as stated below, it reflects some broader concerns with the way in which the academic economics profession is currently structured. It reflects in particular a concern with the continued exclusion of alternative perspectives within academic economics. Academic economics continues to evolve, but not in a way that allows for consideration of ideas from heterodox economics. We are all poorer, academic economists included, for this. Now to the article...

It’s that time of year again – when academic economics, thanks to the Nobel Prize announcements, is thrust into the public gaze.

That the economics Nobel is mistitled and has quite a different status to the other Nobel Prizes is neither here nor there (the proper and rather unwieldy title of the economics Nobel is the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”). The award of the 2014 prize, in the eyes of the academic economics profession and the wider public, still confers great kudos and status.

This year there is just one winner, Jean Tirole. The French economist has earned his reputation and the prize for his work on industrial organisation, which uses ideas from contract theory as well as game theory to further research in this branch of economics. His work is technical and based around the development of formal models.

Building from these models, Tirole has tackled different policy questions including those relating to the regulation of large firms or monopolists. The entry into the policy realm has come about despite – rather than because of – the theory and method to which Tirole adheres, a theory and method which is highly abstract and captures reality largely as an afterthought.

Here I want to make two broad reflections. These relate to the general state of academic economics and the context in which the economics Nobel is awarded on a yearly basis. The below comments do not intend to criticise directly the award of this year’s prize to Jean Tirole. Rather I hope to provoke a wider debate on academic economics that the economics Nobel seeks to honour.

An intellectual and ideological rut

Academic economics is still stuck in an intellectual and ideological rut. Despite the global financial crisis – the worst in a lifetime – academic economists are more likely to win awards and the respect of their peers by producing abstruse models than by tackling and resolving real-world problems.

The economics Nobel awards advances in economic analysis – meaning the development of formal models and the application of particular mathematical and statistical techniques. In essence, solving puzzles within economics matters more than dealing with grand societal challenges. 

Thomas Piketty, who has done more than anyone else in the last year to bring academic economics to the public attention, had no real prospect of winning the prize, given his concern with the real-world issue of inequality. The non-award of the prize to Tony Atkinson – pioneer of inequality and poverty studies – can also be explained in the same way. But it should be a cause of concern, not least for members of the public tuning in to learn who has won the economics Nobel, that acute economic and social issues are not high on the agenda of academic economics.

Neoclassical focus

My second reflection is that academic economics is still all of a type – it stands for some variant of neo-classical economics. Cosmetic differences aside, research in academic economics applies concepts and methods found in this narrow school of thought.

It has dominated economic thinking since the late 19th century and has marginalised all challengers. The award of the economics Nobel is, in fact, an award for conformity to neo-classical economics. Other schools of economic thought do not get a look in.

And this is in spite of the fact that neo-classical economic thinking failed to foresee the global financial crisis and advocates the kind of austerity policies that prevent recovery. It is alternative thinking – whether from Keynesian, Marxian or ecological economics – that can help us to understand how to build a fairer and more equal economy.

A prize for thinking differently and building a better economics would be a great thing, but sadly it is not one that is awarded by the committee of the economics Nobel. Indeed, given the acute problems that exist in academic economics, it may even be time to call an end to the economics Nobel. The world certainly would not be a worse place without it.

Monday, 30 June 2014

In work, but poor: barriers to sustainable growth and the need for a living wage

Rejoice. The UK economy is back to where it was before the crisis. The depression is over and sunny economic uplands lie in the future. Feel good, damn it, the economy is growing again.

There is a reason why the positive growth statistics are treated sceptically. That reason relates to the fact that real incomes have fallen in the UK. Despite the restoration of growth, workers in the UK have continued to suffer cuts in their real pay. One of the arguments for growth is that it raises real incomes – in the UK at least, the reverse is proving to be true.
The economy has achieved growth, while many millions of workers have suffered increasing economic hardship with little prospect of improvement.

From a growth perspective, the grim facts of the recovery provide cause for concern. The UK economy has only been able to grow by workers spending beyond their means. Workers have run down savings and borrowed more to increase their consumption and this has driven growth. But workers can only go on behaving like this for so long. Without a rise in real pay, the spending must come to an end and with it the recovery.

There is no sign yet of net exports recovering to support consumption and any rises in business investment will need to continually confound expectations to offset the further fiscal tightening to come. Again as in the past the UK economy is relying on workers spending more than they earn to support the economy. This is a growth model that cannot be sustained and will ultimately end in disaster.

Even the most ardent backers of the governments current policy stance must harbour some concerns about the prospects for growth in the economy. Lower real wages may help firms keep a lid on their costs but from the perspective of raising demand on a sustainable basis they place restrictions on the ability of firms to grow output. Demand side barriers will bite in the end and terminate the recovery.

But beyond growth there are deeper issues here relating to work and its relation to poverty. Work has long been heralded as the best form of welfare and the route to economic success. This view – summed up in the mantra ‘work always pays’ – has been exposed as a miserable lie. Now it seems that work for many is no escape from poverty. Working hard for a living often means struggling to keep ones head above water. 

Evidence shows that in-work poverty is on the rise in the UK. Among working age adults in low income households, the number in working families has been growing and is now greater than the number in workless families. It used to be that worklessness was the prime determinant of poverty. Now it is more likely to be low waged work.

How did we get into this situation? The underlying causes are complex and multifaceted. They include the decline of unions, the deregulation of the labour market, an inadequate training system and the rise of the service sector at the expense of manufacturing. The UK has lacked the necessary modernising forces that would have otherwise led it towards a high wage economy. Instead, it has evolved an institutional structure that has favoured and entrenched low wages.

What can be done? In the short term, policies to raise real wages in the UK would help not only to sustain the recovery if that is the concern but also to address the problem of in-work poverty. The national minimum wage, although a welcome development, has not managed to address the problem of low pay and this is where calls for a living wage come in. Raising the minimum wage to the level of the living wage would be a bold but economically sensible step to take. Critics may say that this will lead to unemployment. Yet evidence shows that minimum wage hikes have not had adverse employment effects. Indeed, their effect has been to increase productivity via higher levels of worker morale and to reduce welfare spending.

Longer-term, the UK needs to break its reliance on a low wage growth model. For this, it needs a new industrial strategy that focuses on building things, rather than on making money. It needs to invest in new industries via the help of the State. Challenging vested interests particularly in the world of finance and creating a model of sustainable prosperity based not on endless growth but on the promotion of human flourishing remain the ultimate goals. Whether these goals are achievable under current conditions remains a moot point. Yet they are goals that we need to keep in our sights and agitate for.

In the end, the UK cannot afford to pay workers less. Driving real wages down is a recipe for economic stagnation and human misery. For all our sakes, we should seek a rise in real wages.

Wednesday, 23 April 2014

Every weekend could be four days long, if the will was there

In a world of iPhones and drones, people are right to wonder why they are still working so hard. The past century saw huge technological advances and yet there hasn’t been a corresponding increase in leisure time: people are working as hard as ever.

The Easter break lasts for four days; couldn’t every weekend be like this?

Proponents of shorter work time have received two pieces of goods news recently. One is the announcement of a new law in France to prevent employees being required to read work emails out of office hours. The other is the decision in Sweden to experiment with a six-hour work day for some public sector workers.

These two proposals go against the grain in several respects. The French legislation challenges the prerogative of employers to require workers to be on call when not at work – it recognises that modern technology such as iPhones has extended work time, without additional pay, and seeks to protect and promote the “free time” of workers. The Swedish experiment challenges the norm of a 9-5 work day – it recognises the potential economic and social value of a shorter work day and is consistent with a broader movement to promote leisure time as a means to a higher standard of life.

But the two proposals are also relatively limited in scope. The French law only says that workers should not have to check their work emails after 6pm. There is a concern that workers could still feel pressurised to read emails out-of-hours and there is a question mark over whether the law will be enforceable in practice. The legislation also only covers a section of white collar workers, leaving the rest of the workforce unprotected. The Swedish experiment is limited only to public sector workers. There is no requirement on the private sector to experiment with shorter work time – the quest to deliver positive returns to shareholders is likely to mean that most private firms will continue with normal patterns of work time.

Experiments in shorter work time, however, have proved successful, suggesting that the private sector might benefit from their implementation. WK Kellog – of cereals fame – famously improved productivity at his plant by operating a six-hour work day. The economic benefits from shorter work time stem from workers being more refreshed and focused at work. Six productive hours can yield the same output as a full eight-hour work day.

Evidence shows that longer work hours make us less productive. The example of the Netherlands shows how shorter work time can be achieved without a reduction in productivity and in living standards. Longer work hours are also associated with poor health and higher mortality rates – we may be risking our lives by working longer.

As I have written before, the case for working less is ultimately about promoting a higher quality of life including a higher quality of work. It is about giving us more time to realise our creative potential in all kinds of activities; it is about achieving a life that uplifts us, rather than leaves us exhausted and frustrated.

But, given the benefits on offer, why are we not working less? Here are five reasons: 

Employer power: The decline of unions coupled with a more flexible labour market (meaning less job security) have granted employers more power to maintain work hours that suit their own economic interests. 

Consumerism: Workers are swayed by mass advertising and sophisticated marketing to demand more goods and services which in turn requires that they work more. 

Inequality: Workers are more likely to enter into competitive forms of consumption and to feel more pressure to work longer where levels of inequality are high. Evidence shows that countries with higher inequality tend to have longer work hours. 

Household debt: The build-up of household debt, especially in the US and the UK, has put added pressure on workers to work longer. 

Technology: Gadgets such as iPhones and laptops have meant that workers can be at work even when commuting to work or at home.

Taken together, these points indicate that legislation to reduce work time is essential.

Employers won’t voluntarily reduce work time, and workers remain unable or unwilling to opt for shorter work time themselves. We must gain the collective will to curb the time we spend at work.

Other countries can learn from the example of France and Sweden. But given the barriers to shorter work time, wider reforms will be needed if we are to ever achieve a four or three day working week.

The goal of working less may appear utopian. But the quality of our lives inside and outside work depends on its achievement.

*** This post originally appeared on the Conversation,

Thursday, 27 March 2014

Vicars may be jumping for joy but satisfaction surveys require more searching questions

How happy are you in your job? Very happy or very unhappy? New data suggests that the happiest workers in the UK occupy jobs in the clergy. The next happiest workers are CEOs, and “managers and proprietors in agriculture and horticulture”. The unhappiest workers are debt collectors, elementary construction workers and publicans.

It would seem that, from the perspective of raising average life satisfaction, the UK would be better off if it had more vicars and fewer pub landlords. Perhaps we should worry less about the decline in the number of pubs and instead hope – or pray – for an increase in church congregations.

But there are some serious issues with life satisfaction data. Without doubt these data can be useful. But they can also be misleading and potentially dangerous if interpreted in the wrong way. The point is that we need to ask deeper questions about the quality of our lives that conventional survey questions cannot fully grasp. This point applies in particular to the use of life satisfaction data as a putative measure of the quality of jobs.

In some senses, the results are about what we would expect. Those in better paid jobs generally tend to report higher levels of life satisfaction – while money may have its limits in buying happiness, it is certainly better in welfare terms to have a well paid job than one that still leaves you poor.

The results also suggest the importance of the intrinsic rewards of work. CEOs, for example, benefit not just from high pay but also from being their own bosses. By contrast, workers in jobs with a low degree of autonomy such as telesales report low life satisfaction. There also seems to be a boost to well-being from working outdoors – farmers rank as the eighth most satisfied occupational group.

The result for members of the clergy – that vicars and priests tend to report high life satisfaction – can be explained by the fact that they do work for reasons other than money and in the act of working they gain high intrinsic rewards that compensate them for lower wages. Work, in the case of the clergy, is more a “calling” than a means to affluence.

But there are also some anomalies. Company secretaries are relatively lowly paid but report high life satisfaction. Can we say that these workers gain high non-monetary rewards in work that more than compensates them for their below average pay?

However, they are unlikely to report such satisfaction based solely on their income and the nature of the job. One other important factor may be the lower norms of the mostly female workers employed as company secretaries. They don’t expect to be their own bosses, to work for a “higher calling” or to earn millions, and their norms will be set accordingly. If we factor in their lower norms, company secretaries need not be seen as so joyous. 

The point to stress is that life satisfaction data is subject to bias. Two workers doing the same job may rate their life satisfaction differently owing to differences in the norms they hold.

The same argument applies for differences in expectations and aspirations about life and work. The company secretary who does not expect to progress in the organisation in which she works need not feel dissatisfied with her life if she has few opportunities to climb the career ladder. Low aspirations can lead to an acceptance of limited opportunities which in turn may inflate reported life satisfaction.

Of course, this same argument works the other way round too. A high flying CEO would be unlikely to maintain his or her life satisfaction if asked to trade places with his or her secretary, even if the two occupations maintain a similarly high level of life satisfaction. 

Given how norms and expectations as well as aspirations impact on peoples’ perceptions of the quality of their lives, then data on life satisfaction becomes a very noisy signal of well-being. The immediate danger is that we see company secretaries and CEOs as leading similarly happy lives when in reality the gulf in well-being between the two groups is huge. 

Following the same argument, the low reported life satisfaction of those in poorly paid jobs may actually underestimate the hardships they face in their lives inside and outside work. For similar reasons, job satisfaction data is likely to be just as unreliable as an indicator of job quality.

Critics of subjective well-being data such as Nobel laureate Amartya Sen have long argued that well-being should be understood in more objective terms. We should be assessing the quality of occupations like company secretary and CEO based on what the jobs themselves enable people to be and do in their lives, not on subjective assessments of life satisfaction.

If, as reported, the Cabinet Office is working on a web-based calculator that will allow people to make better career choices, it would be better advised to devote resources to compiling data on the different qualitative features of jobs. Certainly, this would be better than relying on the blunt instrument of a one-shot question about life satisfaction, which may hide more than it reveals about the quality of jobs.

This article was originally published at the Conversation:

Wednesday, 22 January 2014

The case for working less

The focus of conventional employment policy is on creating ‘more work’. People without work and in receipt of benefits are viewed as a drain on the state and in need of assistance or direct coercion to get them into work. There is the belief that work is the best form of welfare and that those who are able to work ought to work.

This particular focus on work has come at the expense of another, far more radical policy goal, that of creating ‘less work’. Yet, as I will argue below, the pursuit of less work could provide a route to a better standard of life, including a better quality of work life.

The idea that society might work less in order to enjoy life more goes against standard thinking that celebrates the virtue and discipline of hard work. Dedication to work, so the argument goes, is the best route to prosperity. There is also the idea that work offers the opportunity for self-realisation, adding to the material benefits from work. ‘Do what you love’ in work, we are told, and success will follow.

But ideologies such as the above are based on a myth that work can always set us free and provide us with the basis for a good life. As I have written elsewhere, this mythologizing about work fails to confront – indeed it actively conceals – the acute hardships of much work performed in modern society. For many, work is about doing ‘what you hate’.

Here I want to address another issue that is overlooked in conventional policy debates. This is the need to diminish work. Working less presents several advantages. One is the opportunity to overcome the anomaly of overwork for some and unemployment for others. Sharing out work more evenly across the available population by reducing average working time would enable those who work too much to work less and those do not work at all to partake in some work. Another advantage is the opportunity to enhance the quality of work by reducing drudgery and extending opportunities for creative active in work. Reducing work time, in this sense, can be as much about realising the intrinsic rewards of work as reducing its burdensome qualities.

Economists may cry foul that a reduction in working time will add to firm costs and lead to job losses (mainstream economics accuses advocates of shorter work hours of succumbing to the ‘lump of labour fallacy’ and of failing to see the extra costs of hiring additional workers on shorter hours contracts). One retort to this is that longer work hours are not that productive. Shorter work hours may actually be more productive if they increase the morale and motivation of workers. In practice, we could achieve the same standard of living with fewer hours of work.

But the more profound question is whether we should be asking society to tolerate long work hours for some and zero work hours for others. Surely society can achieve a more equitable allocation of work that offers everyone enough time to work and enough time to do what they want? A reduction in work time, it can be argued here, would offer a route to such an allocation.

There is also the deeper issue of whether we should be measuring the value of our lives by what we produce. The cult of productivity crowds out other more ‘leisurely’ ways of living that can add to human well-being. Challenging this cult and seeking ways to lighten the burden of work could allow us all to live better lives inside and outside of work.

Arguments for shorter work time have a long history. Keynes, for example, gave support to a reduction in working time as a way of achieving full employment. In a letter to the poet TS Eliot in 1945, Keynes suggested that ‘less work’ represented the ‘ultimate solution’ to unemployment. Keynes also saw merit in using productivity gains to reduce work time and famously looked forward to a time (around 2030) when people would be required to work 15 hours a week. Working less was a part of Keynes’s vision of a ‘good society’.

Marx, from a radically different perspective, saw a reduction in working time as an essential ingredient of a future communist society. Work was part of the ‘realm of necessity’ and via the use of technology it could be curtailed as a way to expand the ‘realm of freedom’ in which people could realise their creative capacities in activities of their own choosing. Marx importantly thought that under communism work in the ‘realm of necessity’ could be fulfilling as it would elicit and harness the creativity of workers. Whatever irksome work remained in the realm of necessity under communism again could be lessened by the harnessing of technology.

Yet another advocate of shorter work time was J.S. Mill. He dismissed the ‘gospel of work’ proposed by Thomas Carlyle in part because it drew a veil over the real costs of work, including slave work that Carlyle sought to defend. Instead, Mill advocated a ‘gospel of leisure’, arguing that technology should be used to curtail work time as far as possible. This stress on technology as a means to shorten work time was later to feature in Bert­rand Russell’s 1932 essay, ‘In Praise of Idleness.

The essential ideas of the above writers resonate still today. They cut through romantic views of work and show how human progress depends on society performing less not more work. Although developed in radically different ways, their ideas point to a future where the burden of work is lighter and more time is available for free creative activity. At least in the case of Marx, there is still the prospect of turning work into a fulfilling activity, but the latter objective is seen as achievable only within the context of a situation in which work time is reduced. Less work is seen as a necessary foundation for better work. 

Ultimately, the reduction in working time is about creating more opportunities for people to realise their potential in all manner activities including within the work sphere. Working less, in short, is about allowing us to live more. Let’s work to achieve it. 

** This post originally appeared here. It was reposted here and here.