Monday, June 8, 2015

Inequality, Growth and Leisure

In response to musings by Paul Krugman on inequality and growth, Dean Baker asks whether taking more of the benefits in leisure time might skew the appearance of the data. That is to say if the value of leisure wasn't excluded from GDP, those countries that took more leisure -- and, incidentally, are relatively more equal -- would have higher growth rates.

Ironically, Dean doesn't have the time just now to check that one out. Sandwichman has time but not Dean's virtuosity with data.

As Krugman argues, "there just isn't a striking, simple relationship between inequality and growth; all the results depend on doing fairly elaborate data massaging..." There isn't a striking result to be had from the data for a good reason. There isn't a single relationship in the underlying reality. The results are also constrained by what questions are being asked.

The presumptive question seems to be whether inequality is good or bad for growth. Is that the only question worth asking? Is it the best question? Dean framed his question about leisure as a supplement. He remarks, mock apologetically, "there is nothing wrong with taking the benefits of higher productivity in the form of leisure rather than income."

Wanna bet?

There must indeed be "something wrong" with taking the benefits of higher productivity as leisure. Otherwise, why would economists echo, decade after decade, the lump-of-labor refrain against the "fallacy" of reducing working time? If there really was nothing wrong with taking the benefits of productivity as leisure, then, hey presto, that boilerplate injunction would be superfluous -- inappropriate, even.

Are economists ignoring the obvious?

Sixty years ago, Simon Kuznets -- who won the Sveriges Bank ("Nobel") Prize for his pioneering work in national income accounting -- was puzzled by his finding that for a limited sample of industrially-advanced countries, inequality didn't increase with growth. He was puzzled, in part, because ceteris paribus, "the cumulative effect of such inequality in savings would be the concentration of an increasing proportion of income-yielding assets in the hands of the upper groups." This was the famous inverted "U"-shaped Kuznets curve. Subsequent research by Thomas Piketty has shown the curve to be an anomalous statistical artifact of the periodization and country selection.

There are a multitude of factors that could explain the Kuznets curve anomaly and it is doubtful that knot could ever be untangled. But let me suggest a factor candidate. The period in which the Kuznets curve prevailed was the period in which the eight-hour day became standardized in the industrially-advanced countries. Instead of looking exclusively at the relationship between growth and inequality, might there not be greater insight gained from investigating the triad of growth, inequality and leisure?

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