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Saturday, April 28, 2012

Income Inequality and Leisure Inequality: Do the 1% Work Harder Than the 99%?

Wall Street Journal Wealth Report, Do the Wealthy Work Harder Than the Rest?, by Robert Frank:

One of the most controversial issues surrounding inequality is work effort.  Some on the right argue that top earners are successful in part because they work harder than others. Many on the left argue that the middle class and poor work just as hard – maybe even harder, with multiple jobs — but that the economic deck is stacked against them.

A new study [below] offers evidence that higher-educated (and therefore higher-earning)  Americans do indeed spend more time working and less time on leisure than poorer income groups. In fact, while income inequality may be growing, “leisure inequality” – time spent on enjoyment – is growing as a mirror image, with the low earners gaining leisure and the high earners losing.

The more surprising discovery, however, is a corresponding leisure gap has opened up between the highly-educated and less-educated.  Low-educated men saw their leisure hours grow to 39.1 hours in 2003-2007, from 36.6 hours in 1985. Highly-educated men saw their leisure hours shrink to 33.2 hours from 34.4 hours.  ... A similar pattern emerged for women. Low-educated women saw their leisure time grow to 35.2 hours a week from 35 hours. High-educated women saw their leisure time decrease to 30.3 hours from 32.2 hours. ... (The study defines leisure as time spend watching TV, socializing, playing games, talking on the phone, reading personal email, enjoying entertainment and hobbies and other activities.) ...

While the study doesn’t seek to prove that the high earners work harder “that story would be consistent with the data,” said Mr. Hurst.

Orazio Attanasio (University College London, Department of Economics), Erik Hurst (University of Chicago, Booth School of Business) & Luigi Pistaferri (Stanford University, Department of Economics), The Evolution of Income, Consumption, and Leisure Inequality in the US, 1980-2010 (NBER):

Recent research has documented that income inequality in the United States has increased dramatically over the prior three decades. There has been less of a consensus, however, on whether the increase in income inequality was matched by an equally large increase in consumption inequality. Most researchers have studied this question using data from the Consumer Expenditure Survey (CE) and some studies have suggested that the increase in consumption inequality has been modest. Unfortunately ,there is now mounting evidence that the CE is plagued by serious non-classical measurement error, which hinders the extent to which definitive conclusions can be made about the extent to which consumption inequality has evolved over the last three decades.

In this paper, we use a variety of different techniques to overcome the measurement error problems with the CE. First, we use data from the diary component of the CE, focusing on categories where measurement error has been found to be less of an issue. Second, we explore inequality measures within the CE using the value of vehicles owned, a consumption component that is considered to be measured well. Third, we try to account directly for the non-classical measurement error of the CE by comparing the spending on luxuries (entertainment) relative to necessities (food). This is similar to the recent approach taken by Browning and Crossley (2009) and Aguiar and Bils (2011). Finally, we use expenditure data from the Panel Study of Income Dynamics to explore the dynamics of alternative measures of consumption inequality. All of our different methods yield similar results. We find that consumption inequality within the U.S. between 1980 and 2010 has increased by nearly the same amount as income inequality.

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I find this really interesting and highly plausible. It makes sense that people in higher-paid professions are expected to work harder. But I wonder how this might change if we looked at other indicators like work intensity.

Without reading the studies, I wonder how much accounted for the time high-paid workers spend goofing off looking at websites like Facebook or Netflix when they are nominally working. I also wonder if somebody could figure out a way to compare physical work performed by a plumber or carpenter to mental work performed by somebody in marketing or HR.

Posted by: NL_ | Apr 28, 2012 4:54:04 PM

From the abstract, one might come to the conclusion that the study has nothing to do with leisure time as none of the inputs actually seem to offer insights into time spent on leisure. Given the wide differences in incomes between the median household and the median of the 1%, it takes quite a lot of leisure (CE) spending to maintain a comparable percent. It would not suprise me to find that the median household spends significantly more, as a percentage of household income, on "leisure" as defined by these authors than the 1% household.

Posted by: Marty Heyman | Apr 29, 2012 8:33:09 AM

Wouldn't we expect annual income inequality to go up with increased education inequality, since education defers income and has negative cash flow along the way?

It seems to me that we don't know much about income inequality unless we look at it on a life cycle basis, and take into account the costs of education along the way, and differences in hours worked. The average doctor works 60 hours a week after a lenghthy (and low paid) training period, so you would expect their income would be higher in any particular post-training year.

I can't see any indication in the abstracts that these factors are considereed.

Posted by: Dave Anderson | Apr 29, 2012 6:21:31 PM