Should Americans Work More? To Hit 4 Percent Growth, We Would Have To

© Karsten Moran for The New York Times
© Karsten Moran for The New York Times

Jeb Bush said last week that Americans would “need to work longer hours” if we’re going to meet his ambitious target of 4 percent real annual economic growth — nearly double the average growth rate the Congressional Budget Office expects in the future. Then he clarified his remarks to say he was talking specifically about the 6.6 million American workers with part-time jobs who say they would like to work full time.

The narrow idea that full-time jobs should be available to people who want them is uncontroversial. “To the extent that Jeb was saying involuntary part-timers should be able to find the full-time work they seek, I agree!” wrote Jared Bernstein, a former top economic adviser to Vice President Joe Biden, in an email.

But when I asked economists about the 4 percent growth target last month, even the ones who were sympathetic to his aggressive goal said we’d need big increases in the labor supply to get anywhere near it. That is, even before the “longer hours” comment, the implication of his goal was that he would introduce policies to push many of us to work more hours — well beyond the 6.6 million Americans who are officially underemployed.

It wouldn’t be unthinkable for Americans to work more. While the average American workweek is already longer than in most high-income countries, the Irish and the South Koreans show it’s possible for an advanced country’s workers to put in more hours than we do. And while the suggestion that Americans should work harder is being treated as a gaffe, there is a lively debate among economists on the left and right about whether longer workweeks would be desirable.

“It’s no question our tax and transfer system creates distortions against work,” says Michael Strain, a labor economist at the American Enterprise Institute, a right-of-center think tank. One reason is fairly simple: Labor is taxed, and leisure is not. People who would work an extra hour if they got to keep 100 percent of their pay may be working less because they get to keep only 90 or 80 or 60 percent of that hour’s pay after taxes.

Besides tax effects, entitlement programs also discourage work in two ways. By raising people’s incomes, they make it less necessary for people to work lots of hours just to get by. And since programs like food stamps pay out less to people as their incomes rise, they act like a tax on work.

Kevin Hassett, a colleague of Mr. Strain’s, offered a thought experiment about fixing these distortions.

“Taxing labor income distorts labor-leisure choice,” he said, meaning that people will relax more if you tax them for working. “One theoretical approach is to tax complements to leisure, such as a tax on skis, bowling balls and X-Box consoles.”

But as Vox’s Ezra Klein notes, Republicans have a suite of more real-world-oriented policies whose effect would be to reduce distortions against work, lead Americans to work more hours and therefore expand the economy without trying to implement a leisure tax. These include: lower tax rates on labor, especially for top earners who currently face high rates; less generous welfare programs; shorter durations for unemployment insurance; and strengthening the tie between health insurance and full-time employment by repealing the Affordable Care Act. Mr. Bush has also called for raising the Social Security retirement age, which would induce older Americans to work more hours.

Liberal economists acknowledge that taxes and other public policies can discourage work, but they tend to be more skeptical that an undersupply of labor is a significant problem. The fact that workweeks are already longer in the United States than in places like Germany and Britain suggests we’re doing a pretty good job of not discouraging work too much.

Dean Baker, an economist at the left-of-center Center for Economic and Policy Research, also noted that there were offsetting policies that actually distort in the direction of extra work. Fringe benefits like health insurance and pensions are often tied to full-time employment as a result of federal tax and labor laws. That encourages some people to work full time when, absent incentives created by the government, they might prefer to work part time.

But there’s also a much broader issue: Sometimes, more work is a bad thing.

For example, the main point of Social Security is to make it possible for people to retire — that is, to work fewer hours. Cutting Social Security benefits so people have to work farther into old age would increase hours worked and add to the economy, but is it actually something we want to do? Similarly, unemployment insurance benefits induce some people to stay unemployed longer than they otherwise would — especially when the economy is strong and jobs are widely available — but they also provide two offsetting advantages. One, they give people time to look around for the right job instead of the first job they can find. Two, they help people avoid destitution when they are out of work.

Mr. Strain noted that not all policies that promote work promote well-being, and it’s important to find approaches that do both.

“If you gutted the social safety net, I think you would see a significant increase in labor supply,” said Mr. Strain — which was not an endorsement of such a policy. Instead, he suggests increasing the earned-income tax credit (which rewards low-wage workers for working more), removing barriers to occupational licensing (so it is easier to enter occupations that require certification, such as hairdressing) and making it easier for low-paid workers to commute to work.

These policies are carrots for low-skill workers rather than sticks, which might draw Democratic support — though in recent years, Republicans have been more inclined to praise the benefits of the earned-income tax credit than to spend extra money on it. But even with Republican support, it’s not obvious those carrots could induce enough new labor to come close to Mr. Bush’s growth target.

Americans could be induced to work more on a broad scale through big tax cuts — though those would have to come with big spending cuts. Or they could be induced to work more with big cuts to entitlements, and all the costs to standards of living that would entail. The lack of easy options to increase the number of hours — whether through longer workweeks for current workers or through bringing millions more into the work force — is a major reason it hasn’t already been done.

Written by Josh Barro of The New York Times

(Source: New York Times)

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