Abstract
In1930 Keynes famously predicted that 100 years later—i.e. in 2030—the “economic problem” would be solved and we would be living in an “age of leisure and of abundance” working only 3 h a day. In the same text, Keynes stated that there are absolute and relative needs (“in the sense that we feel them only if their satisfaction lifts us above, makes us feel superior to, our fellows”), but he thought that relative needs are of minor importance. Richard Easterlin’s work, on the other hand, suggests that relative needs are pervasive and that wellbeing depends much more on one’s relative income than Keynes once thought.
It will be argued in this text that Richard Easterlin’s findings, in spite of proving Keynes off the mark in his understatement of relative needs, strengthens the case for working time reductions: the larger the proportion of goods subject to the relative-income effect, the greater are the benefits of working fewer hours. Perhaps the main explanation for why we are still sticking to the 40-h work-week is that the Easterlin paradox has not been widely understood yet.
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- 1.
This ceteris paribus clause is meant to take continuous technological progress for granted, including innovations that improve resource efficiency. Even if technological progress leads to absolute decoupling (cf. UNEP 2011) between consumption growth and total environmental costs, rising consumption will entail more environmental costs than stationary consumption levels for any given technology. Absolute decoupling as such does not settle the moral debate around consumption restraint.
- 2.
See the editors’ note introducing Keynes’ essay in the “Collected Writings, Vol. 9” edited by Elizabeth Johnson and Donald Moggridge.
- 3.
I am not endorsing this approach for the purposes Becker had in mind—I rather agree with Amartya Sen (1978) that the utility maximization paradigm is deeply flawed. Nevertheless, Becker’s method can be illuminating for better understanding the relative-income effect and hedonic adaptation.
- 4.
Of course, a given individual may derive additional benefits from car ownership that end up raising her utility above the original situation. Determining the size of these two effects—restoring lost satisfaction or gaining additional satisfaction—will be difficult or impossible in any practical setting, but for conceptual clarity I will assume that these two effects can be observed and analyzed separately.
- 5.
I am making the simplifying assumption here that secondary inflation simply downscales the utility-value of consumption in a proportionate manner, even though this is not necessarily the case. For example, cutting back on public transport because of increasing car ownership may affect low-income earners more than high-income earners, thus having an asymmetric effect on the marginal utility of consumption of different groups of people. Bowles and Park (2005) argue that an asymmetric Veblen effect where utility depends on upward comparison only is a more plausible model than a symmetric relative-income effect that depends on average earnings.
- 6.
Since the simple prisoners’ dilemma is a perfectly symmetric game, this is only true if all players have the same preferences for more leisure. In reality, of course, there will always be some workers who would prefer to work longer hours. This means that the suggested “solution” is of course no Pareto improvement. Rather, any solution will be a political arbitration between conflicting interests, as in all real-world collective choice exercises.
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Hirata, J. (2019). Keynes’ Grandchildren and Easterlin’s Paradox: What Is Keeping Us from Reducing Our Working Hours?. In: Rojas, M. (eds) The Economics of Happiness. Springer, Cham. https://doi.org/10.1007/978-3-030-15835-4_13
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