Why Work if the Best Things in Life are Free

There are times when anecdotes trump data, make things clearer than abstract statistics can. This is one such time. The boss of a company that is losing $4 million every day has told his employees that they must show up for work forty hours per week “at high intensity” or leave the company, later modified to allow work-from-home if supervisors approve. Supervisors must meet with their teams on a regular base. Hundreds of outraged workers have told Elon Musk to take his job and shove it while they collect three months’ severance pay as they clear out their desks, if indeed, they had been in the office often enough to have the usual personal effects scattered around. It was not long ago that Musk’s demand of Twitter’s workers was the norm, so much so that it was implicit in a job offer. And in workers’ acceptance of that offer. That was long ago. Now Senators Richard Blumenthal and Elizabeth Warren head a group of seven senators asking the FTC to investigate whether Musk has violated certain agreements with the agency.

Worker outrage tells us there is something going on in the American labor market that Federal Reserve Board chairman and his colleagues cannot fix.

Powell says the condition of America’s labor market is “unhealthy”, with demand exceeding the supply of workers, driving up wages and prices. The medicine he prescribes is interest rates high enough to reduce the number of jobs so as to reduce that pressure on wages and the prices of goods they make and services they render.

Powell might well be right. But when he has finished the blood-letting he may find that there is another, more durable, less easy to diagnose disease afflicting the patient: a mounting aversion to work that will persist even when the “unhealthy” demand:supply balance is eliminated, when unemployment has moved up and job opening have moved down. The prescription for that disease might not be found in the Fed’s vaunted tool kit, but in the kits of our politicians.

It is true that man does not live by bread alone, but he cannot live without it. Which is why men and women work, even those who love their work. Necessity is the mother of work. Reduce the pressure of necessity, and you reduce the amount of work that will be offered to an economy. Which is why it is worth considering whether the incentive to work is being undercut by social and political forces beyond the reach of interest rates and Quantitative Tightening.

Powell plans to make it more expensive for people to buy houses, cars and appliances so that they will buy less.  Companies will therefore need fewer workers, and the  demand-side pressure on wages and prices will ease. It is the supply side that remains to be considered. And although job openings are plentiful, and wages are rising, the supply of labor remains too restricted for Powell to achieve his goal without an unnecessarily severe reductions in jobs and parallel increase in unemployment.

Despite Fed tightening that has hit the housing industry especially hard, despite recent layoffs by high-tech companies that misjudged their needs, the demand for workers is holding up rather well. Doubt that, and ask any employer if he could use a few waiters, or pilots, or hotel clerks. Supply remains a problem.

Nevertheless, some 7 million men in their “prime working age” as government numbers-gatherers call them, are neither working nor looking for work (NILF, Not In Labor Force). Add the many men and women who Nick Eberstadt, an economist at the American Enterprise Institute think tank, says “seem to have gone into a sort of premature retirement”, and you have what he calls “Warning signs that growing numbers of Americans are ambivalent about – or allergic to working…”.

Some of that allergy is related to the reported cases of long covid, which Katie Bach says Census reports show is keeping two-to-four million out of work. But many millions of Americans are neither working nor looking for work because the pressure of necessity has been reduced, and because of the spread of a negative attitude towards work, grandly labelled better work-life balance.

Start with reduced necessity. Eighty years ago, Britain’s Sir William Beveridge who is rightly thought to have contributed to, if not created the welfare state, warned, “The State in organizing security should not stifle incentive, opportunity, responsibility…”. It is entirely possible that the air of emergency created by the covid pandemic liberated politicians to ignore what Sir William called one of his guiding principles.

University of Chicago economics professor Casey Mulligan and colleagues calculate that in 19 states benefits were equivalent to $100,000 per year in salary for a family of four with two unemployed parents. Meanwhile,  an eviction moratorium protects some 6.5 million “renter households” who are behind on their rent, and another AEI scholar, Howard Husock, reports that the government has allocated $46.5 billion to help tenants pay back rent accumulated when the suspension of evictions relieved many of the pressure to remain current. And the number of people benefiting from SNAP (Supplemental Nutrition Assistance Program, formerly food stamps) increased by three million between 2019 and 2022, to 41.1 million.

There’s more, but you get the idea. Add a new attitude towards work, reflected in “quiet quitting” – doing the bare minimum necessary to avoid being fired – and demands to maximize work-from-home. Jack Kelly, a senior contributor to Forbes, reports an increase in office usage, but that takes it to only 50 per cent of pre-pandemic levels. Some 85 per cent of the 20,000 managers surveyed by Microsoft worldwide said the shift to hybrid work has made it challenging to have confidence that employees are being productive. Which might be one reason workers find it attractive. A study by the Society for Human Resource Management reports that supervisors have “negative perceptions” of work-from-home, and other studies show that supervisors are building such work into annual employee salary and promotion reviews: WFH fans, beware: that never-on-Friday attitude that has empty offices the norm might not be a plus factor in those reviews.

The struggle for better work:life balance seems to boil down to an effort to have less work and more own-time with no negative impact on pay or promotion. Wall Street Journal columnist Andy Kessler reports that a CEO of a Fortune 500 company emerged from a day-long meeting with his human resources staff discussing post-bereavement policy with his HR team, asked “Let me get this right, someone’s goldfish dies, and they get a week off from work?”

These programs are being paid for by borrowing, passing their cost off to our children and grandchildren. They force the Fed to create more unemployment than would be necessary if workers now on the sidelines had an undiminished incentive to return to the workforce. With real needs rising as winter and a recession approach, now might be a good time to structure benefits to minimize  their impact on incentives to work and conserve.