## Why Keynes’s prediction has not come true

Writing in the 1930s economist John Maynard Keynes predicted at at the “time of our grandchildren” (figurative term since he himself had no kids) people would live a life of leisure and work for an average of fifteen hours a week. Yet, it’s been eighty years since and we still slog away, putting in anywhere between forty and sixty hours a week as we earn our living. And it doesn’t look like things are going to change soon

So why did this happen? I propose two reasons. When I quit my first job almost eight years ago within three months of joining I complained that the workload was way too high. I added that I didn’t need all the money that job paid me and wouldn’t mind taking up something that paid half the money and where I had to work only half the time. No such thing materialized and I slogged away, before going freelance two years back.

Now why does this little anecdote matter? I’m using this to show that the returns to work are not linear. If you were to plot the number of hours worked per week on the x axis and the total value added on the y axis you are likely to get a convex function. In other words the marginal benefit out of every additional hour you work per week is an increasing function of how much you’ve already worked.

The question is why this is so. One simple answer is that in jobs with a high degree of learning by working longer you end up learning faster. Then within the job you can have network effects where the work you do in one part of the job can help you do another part better (I constantly see this in my freelancing where I work on several projects at a time). If there is a steep learning curve it is easier for the firm to appoint one worker to work sixty hours a week than two to work thirty each – since the starting costs get saved. And so forth.

So this increasing returns to effort (in terms of the hours worked) is that the trade off between work and leisure gets resolved in favour of leisure only at a very high level of work – where you are working close to capacity and don’t want to risk burnout and want to maintain your sanity. Before that the increasing returns to effort means that you are likely to put off leisure in favour of “just a little more work”.

The question is if all jobs work this way, and why an economist as brilliant as Keynes didn’t see this concept of increasing returns to work. The answer is that increasing returns to work applies only to a certain kind of jobs – jobs that require a high level of skill and learning and which can be broadly classified as “knowledge jobs”.

Back in Keynes’s time such knowledge jobs were few – far fewer than they are today. Most workers were in jobs that didn’t require a high degree of skill or learning. In unskilled jobs or jobs that are physically demanding the expanding returns to effort part of the curve is extremely short. Once you have figured out the best way to bolt together two metal pieces doing more of this job is not going to make you much faster in bolting together two metal pieces.

Instead since it is physical after you’ve put in a certain number of hours in a day you begun to tire and become less efficient (notice this point occurs at a later stage for knowledge jobs). And the returns to hours curve starts flattening out much sooner. If you were to do the trade off with leisure using such a curve the equilibrium might occur much earlier than for knowledge work – perhaps at Keynes’s predicted value of fifteen hours per week.

Now even today while the proportion of non knowledge jobs is smaller than eighty years back the number of people doing such jobs is not small. So if the work-leisure equilibrium happens at fifteen hours a week why do people work longer?

The answer is that work-leisure is not the only equilibrium one is solving for. You also need to work enough to be able it fund your living. And it has happened that fifteen hours of non knowledge work pays nowhere close tO what is required to fund a reasonable living. For this reason non knowledge workers are forced to work much longer than their work-leisure equilibrium rule permits!

So why didn’t Keynes see this? I think what he missed was the boom in the knowledge economy in the postwar period. With the rise in the knowledge economy what you had was a set if jobs that had increasing returns to effort. Moreover these returns, on an hourly basis, were far larger than the returns on a non knowledge job. The boom in the knowledge economy meant that people working in such jobs impacted general prices and this forced the non knowledge workers to work longer!

So we have the unique situation now that those people who can afford to work for only fifteen hours a week have no incentive to do so. On the other hand people who have an incentive to work no more than fifteen hours a week are forced to work longer because otherwise they cannot find their lives!!

## Value of skill in rural India

Earlier today I had blogged about wage rates for unskilled workers in rural India. Now, we will use the same dataset and see what premium people pay for skills. The same data gives wages for certain occupations – carpenters, masons, cobblers, blacksmiths, etc. There are also wages given for various types of farm labour, and for the purpose of this exercise I’ve used ploughing to be representative of farm labour.

The following plot shows the wage rates for different skills in different states. A note on how to read this graph. The x axis represents the state and the y axis represents the daily wage for that particular skill. The skill itself is represented in text form. So for example a carpenter in rural Kerala gets about Rs. 600 per day while a sweeper in Bihar gets about Rs. 100.

• Notice that even skilled jobs in other states don’t fetch as much as an unskilled job in Kerala. Tamil Nadu and Punjab come closest
• The skills most in demand in rural areas across states are carpentry and masonry, if you go by this data
• In most states, cobblers earn lower than “unskilled workers”. This is interesting because there is skill involved in making and repairing shoes. The low wages for cobblers indicates a caste bias. It is also possible that since cobblers are mostly self-employed their wage rate is inaccurate
• Blacksmiths are again not too highly valued in villages
• The high numbers for Kerala could be a function of the state’s lower urban-rural divide compared to the rest of India. Kerala is generally described as a semi-urban continuum with no strongly delineated urban and rural areas. Rural workers could be expensive since they are in demand for urban jobs also, unlike in other states.

The same caveats that apply to the previous post apply to this. We don’t know the sample size or the accuracy of the survey. Nevertheless, some interesting insights come out.

## Wage rates in rural India

The Labour Bureau, affiliated to the Union Ministry of Labour, does a monthly survey on wages in Rural India. Wages of men and women in select occupations are polled (data is collected by the NSSO) and published on the website of the labour bureau. In this post we will look at the average daily wages of unskilled male workers (as reported by this survey) in the 20 states for which it is published (your guess is as good as mine as to why it is not published for other states).

It is interesting to note that the daily wage of the average unskilled man in Kerala is almost five times that of the average unskilled man in either Gujarat or Madhya Pradesh (states that are at the bottom of the list). Some states known to be “progressive” such as Punjab, Haryana and Tamil Nadu are also towards the top of the list while other so-called “progressive” states such as Maharashtra, Karnataka and Gujarat are close to the bottom.

Like any other data put out by the government, this should be taken with some salt. First of all, the sample sizes is not mentioned. Secondly, only the average number is reported and no measure of dispersion is given. For example, it is hypothetically possible that in Kerala they interviewed ten workers, nine of whom received Rs. 100 and the tenth received Rs. 4000 leading to an average of Rs. 490! As a thumb rule, when you put out survey data, you should always include sample size and a measure of variation (such as the standard deviation), else it is hard to conclude anything from the data.

## Maruti Worker’s Stupidity

I just read a long article in today’s Business Standard (how I used to miss the paper until I resubscribed to it last week!) about the ongoing labour struggles at the Maruti Suzuki factory in Manesar. So the workers there want to form a new union, and allow a whopping 33% of the new union’s members to come from outside the factory. And the management is understandably not accepting it.

That workers need a union is understandable. That the Manesar unit wants its own union disjoint from that in Gurgaon is understandable. But a third of its members from outside? What is the average worker in the factory who is supporting this new demand even thinking? How the hell is such a union going to represent him in any way?

Some simple arithmetic. Considering that the “outside third” is going to come from the CPI/AITUC, it can be assumed that they’ll vote in one bloc. So to get something passed, they need a further 1/6 of the total votes in the union. Which amounts to a fourth of the actual workers in the union. So, as long as something is supported by this “outside bloc”, it takes the support of only a fourth, a measly one fourth, of the “real members” to go through.

I understand that the “worker leaders” who are championing this ongoing strike will have some incentives in bringing in AITUC/CPI. But what’s in it for the average worker? If he were to think rationally, this new proposed union makes absolutely no sense for him. I guess (and hope) that the Maruti management knows this, that it is not in the interest of the average worker to join this union. And I hope they’re somehow using this fact in their ongoing negotiations.

Will be fun if the guys who tried to consolidate their own power by bringing in outside representation into the union get shafted.