In principle, the past twenty years worth of increases in productivity could have resulted in flat output but decreased hours worked. … Obviously, that’s not what happened. But isn’t it something that could happen in the future?
This certainly could happen where labor is fungible, such as on an assembly line or at a restaurant. But in high skill occupations, work is extremely specialized. At my law firm there are certain tasks that I can do far better than anyone else. And for them to even try to do a particular task, they’d have to spend at least twice as much time. Likewise I’d have to spend twice the time to do their jobs. So it just is not possible for me to cut my hours, take a proportional cut in pay, and have my employer find someone else to take up the slack.
Relatedly, my productivity depends on the number of hours I spend on a particular case. The first 10-20 hours are not very productive since they involve me learning the facts and important legal issues involved, but not directly producing anything of value for the client. Once I’ve internalized this information, I don’t need to relearn it, though I do need to keep spending time keeping up to date. So the most efficient way to staff a case is to do so “leanly.” That is, to have fewer lawyers doing nonproductive work keeping up with the case, and more actually “producing” (taking depositions, writing motions, etc.)
Since the secular economic trend is for more jobs to become like mine (requiring specialized skills) demand is increasing for more hours from fewer workers. As Matt recognizes, the marginal utility of wealth goes down as people earn more. This trend makes people with jobs like me less happy. We don’t want more money if it means even more hours.
But since the marginal return to additional hours goes up for employers of specialized skill employees, the rational response of employers is to figure out ways to make employees work more. Minimum billable hour requirements, bonuses that grow very quickly, and better work assignments are some of the ways that law firms do so.
One other thing to think about is the fixed cost per employee. This includes training, benefits, office space, non-shared equipment, and in the case of law firms fixed per-lawyer costs such as annual bar dues and Lexis-Nexis subscriptions. In a competitive market for legal services and a competitive market for legal labor, law firms will be forced to make their lawyers work longer and longer hours, to the point that their low morale and physical exhaustion reduce their productivity below that of hiring new people.
All of this points to a difficult public policy question. A free labor market increasingly seeks to work smaller numbers of people more and more. This is the most efficient outcome economically, but leads to an undesirable degree of unemployment, economic inequality, and extremely overworked high-skilled workers. Once again, the market acts to maximize GDP but not utility.
Strict overtime laws are a very blunt way to offset this problematic result of unregulated labor markets. I think a better way is to reduce the fixed costs of labor. One very good way is to reduce the fixed costs of each employee, such as by moving away from employer-sponsored health insurance.
