According to the Census Bureau, the median earnings of U.S. workers of 25 and over in 2001 was 6.78 percent above its level in 1973. However, according to the International Labor Organization, the average U.S. employee worked 1,978 hours in 2000, compared with 1,883 in 1980. In other words, remuneration per hour was pretty well flat, in spite of a generation of technological progress. So has all this hard work done Americans any good?
In conventional free market economic doctrine, it should have done. Workers make their own choices as to how much effort to put into their job, and how to balance it with their family and leisure activities, while employers make their own free determinations of whether to employ particular workers, and how much to pay them. In this economically Panglossian view of the world, therefore, if American workers want to work harder, while European and Japanese workers slack off, that simply reflects such cultural factors as the greater propensity of Americans to indulge in consumption.
As a young banker, I had a dream. It was to get a job that paid half the salary and bonus of an investment banking partner, in return for working half the hours. A 40-45 hour week, in return for an annual remuneration of $1-1.5 million — that seemed to me to be an ambition worthy of a gentleman!
Not only did I not achieve this ambition, but there was never any chance that I would. Such jobs do not exist. In order to get paid like a top investment banker or lawyer, one must put in a workweek of ludicrous length, even though much of the excessive workweek is spent in pointless internal meetings or office politics. The ninetieth hour of the workweek is very seldom as productive as the first forty, but one must put in the ninety hours in order to hold the job that pays the top salary.
There would thus appear to be a market imperfection; the market for executive labor is “lumpy” so that not all combinations of work time and salary are possible.
This is of course entirely to be expected in the markets where individual services are sold. Notoriously, early industrialization tended to exploit the workforce, so trades unions appeared to combat this tendency. While the market for labor is theoretically perfect, in practice there’s a bit more to sell one’s labor than there is to selling soap powder.
At this point it is instructive to engage in a little “public choice theory” — the economics that studies organizational decisions from the viewpoint of the interests of the protagonists.
Top management wants to get as much work out of its staff as possible. In the days of strong labor unions and lifetime employment, it was hampered from doing so by the workforce’s ability to resist collectively any suggestion of “speed-up.” In unionized settings, this is still the case, so that the Bureau of Labor Statistics has found that, although the annual hours worked of the U.S. labor force as a whole has increased substantially over the last decades, that of “plant labor” has declined, to about 34 hours per week from 36 in 1980. In a factory with a large labor force, where dismissals will cause major labor unrest and contracts are bargained collectively, the workforce’s ability to resist management’s demands remains strong.
In non-factory settings, however, the removal of middle management, the increase in top executive incentive compensation via stock options and increased workforce turnover have all increased top management’s bargaining power, and its ability to enforce a workplace norm that involves much longer working ours than employees may wish. This is for one very simple reason: management’s ability to impose on employees the very substantial costs of redundancy. If the cost of working a shorter week is not a smaller bonus but a prolonged period of unemployment, together with considerable uncertainty as to where the new job will come from and what it will pay, then the employee is no longer a free bargaining agent, he is operating to a large extent under coercion.
Additional coercive factors arise from the greater number of women in the full-time workforce, and from relatively high immigration; both factors tend to increase the supply of technical and middle management labor without increasing the demand commensurately.
For top management, this situation is ideal. A workforce norm is imposed under which 70-80 hour workweeks are required for promotion, and 50-60 hour workweeks are required in order to remain employed — whatever the employee’s nominal terms of employment. With weak corporate governance, top management no longer has to present the profits of sweating the workforce to shareholders, instead, it can keep a very large percentage of them itself, via stock options.
Naturally, top management also has to work long hours (although the example of Dennis Koslowski suggests that this is by no means universal). However, since in the Darwinian selection through which it rose, working excessive hours was key to survival, top management is drawn predominantly from among those segments of the workforce with fewest outside interests, whether a stable family life or in the cultural field. The tradeoff works for them; they have a low need for leisure time outside work, and a high need for ego gratification through achievement of power and wealth. “Neutron Jack” Welch, destroying his marriage in order to have an affair with the Editor of the Harvard Business Review, with whom he was discussing management techniques, is a case in point. Whether society as a whole benefits from having its major corporations run by these psychotic personalities, some of whom are highly unstable, is of course a different question.
Meanwhile the United States’ GINI coefficient of inequality moves inexorably upward. Around 0.32 at its low point in the early 1960s, and 0.34 in 1973, it has moved up beyond 0.4 in the last 30 years, and shows no sign of reversing. In the short term, workaholism, and forced workaholism have probably helped economic growth, since they have maximized the output of the U.S.’s highly educated workforce. In the longer term, the picture may be very different.
For the workforce that is not protected by a union, the inhabitants of the Dilbert strip cartoon, the tradeoff is almost always sub-optimal. Top management’s bizarre lifestyle preferences are imposed on the company culture through coercion, and there is little that middle management and technical staff can do about it, other than seeking alternative employment or attempting entrepreneurship.
As the above statistics demonstrate, middle management’s ability to live the good life is hampered not only by the hours it has to work but also by a living standard that has failed to rise significantly in thirty years, rendering it essential in many families for the wife to work full time to make ends meet. Of course, the quality of family life is thereby further degraded.
The future of the forced workaholics is pretty grim. Once their capabilities begin to lessen, they will of course be forced into penurious early retirement, since top management cannot afford to tolerate any slackening of effort, because of the adverse effect on the rest of the workforce. At retirement, their savings will be far less than they had hoped for, since they lack a final salary pension scheme, and their savings, which they lacked the time to invest intelligently, have been devastated by choppy stock markets and inept “financial advisors.” Even if they have money, of course, they have neglected their outside interests throughout their working life, and so have few intellectual, cultural or internal resources to fall back on in retirement.
The true downside to the workaholic society comes in the next generation. Traditionally, the major advantage of a middle class over a blue collar childhood was the assistance given by parents to the child’s intellectual and emotional growth. A child reared in the family of William H. Whyte’s 1956 “Organization Man” not only had clear male and female role models, it also benefited from full time attention from the mother, and a great deal of attention from the father also, as working hours had shortened since the 1920s, giving fathers more leisure time.
Today’s child, with two working parents, at least one of them putting in far more than a normal working day at the office (and very often bringing home work and being interrupted at weekends by cellphone calls and travel) has less interaction, emotional and intellectual with its parents, and is generally brought up largely by semi-professional child minders. Consequently its intellectual and emotional development will resemble more closely that of the neglected blue collar child, rather than the coddled offspring of the middle class. Even for children of top management, the huge amounts of available money will in no way make up for lack of parental attention.
In the long term, the increasing income inequality, declining quality of the young workforce, and the high taxes needed to take care of a baby boom generation that has omitted to provide properly for itself, but remains in healthy retirement for three and even four decades will cause an evolution in U.S. society towards a stratified, corrupt and stagnant business culture, similar to that of Latin America. That is likely to be the true cost of workaholism.
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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)
This article originally appeared on United Press International.