An underrated way to reduce inequality: work more

The different best-selling books on income inequality cite a variety of determining factors. Robert Kuttner blames global capitalism. Paul Krugman attributes it to poor domestic conditions economic policies. Thomas Piketty writes about capitalists as if they were rentiers who extract royalties from the system.

There is another factor that tends to go unnoticed: the time-honored virtue of hard work. If you work harder (and smarter) you will make more money. This would not have surprised my grandmother, but in today’s intellectual world it is sometimes necessary to repeat old truths. And studied.

Economists at Princeton, Vanderbilt, and the Federal Reserve Bank of St. Louis have estimated how much hard work contributes to lifetime income inequality. While the answer depends on context, they arrived at an average for the American workforce: about 20% of the variation in lifetime earnings can be explained by differences in hours worked.

That’s a lot, but it’s far from all. Other explanatory factors probably include where you were born and raised, who your father knew, and sheer luck.

The decision to work harder operates on at least two levels. First, you spend more total time, which generates greater income over your lifetime. Second, you invest more in your human capital, which makes you more productive. Between a third and half of the highest incomes of the hardest workers come from this situation. human capital channel. One lesson is that if you are going to get busyYou need to do it relatively early in your life, so you can reap the benefits of human capital in future years.

Another crucial point is that those who work harder do so because they want to. There may be different types of heterogeneity in capabilities, including learning capacity or initial human capital. But in the researchers’ model, 90% of the variation in earnings due to hard work comes from the simple desire to work harder. Note again that this is an average, so it doesn’t necessarily describe the conditions faced by, say, Elon Musk or Mark Zuckerberg. The study focuses on the United States, but also has implications for Europe. In France, for example, work is limited to 48 hours per week, with the standard week being 35 hours. That reduces average earnings and income inequality, as it is harder for top performers to continue making more money. This research finds that the losers from this regulation are found in all sectors of the wage distribution, not just at the top. Some Americans view European workers as lazy and unmotivated. But in the 1970s, when European tax rates and regulations were lower, Europeans worked slightly harder on average than Americans. So it’s possible that if Europeans were allowed to work more, they would.

This research measures averages, but other economists have focused on behavior at the extremes. In virtually every society in human history, elites have used their wealth to work less and enjoy life, and sometimes to exert power over others, as in the Roman Empire. Rich Americans, on the other hand, seem to want to work harder and harder.

Is this due to the extreme sums of money they can earn? Or is it the power of the Americans? work ethic? Perhaps these two forces are related. In any case, the rich class in the United States is characterized by wanting to work so hard. I periodically hear Europeans comment on how strange this is: Don’t you Americans care about more than just money? – and I often respond by pointing out that one of the richest people in the world is Bernard Arnault of France.

I should also point out that many low-income people work very hard and are very conscientious, but they don’t make much progress. They may lack appropriate skills or education, or have family and childcare obligations, limiting their opportunities for advancement. Hard work alone is not a solution to income inequality.

However, hard work does matter, as does the willingness to work hard. It’s good to have economists quantify what most people would say is just common sense.