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Defining Wealth: Productivity or Hours Worked?

Posted By Barry Ritholtz On July 11, 2004 @ 6:56 am In Finance | Comments Disabled

Why is the United States the richest nation in the world? One would expect that a complex question such as this would require a degree of sophisticated analysis, taking into account all of the factors defining wealth: Quality of life, various freedoms, career opportunities, etc.

Of course, here in soundbite central, we don’t have time for such niceties. Instead, we follow the path of reductio ad absurdum to reach a simple and obvious conclusion: We work more hours. This way, we avoid a more complex approach to decision making and analytical thought, dumbing down all discussions so they can be understood by a 4 year old, and then placed on a bumper sticker.

Here is the WSJ’s [1] take on the issue:


“Many analysts have attributed the U.S.’s high per capita income to higher U.S. productivity — that is, output per worker. The OECD report found, however, that relative to other industrial countries, higher U.S. incomes are “largely due to differences in total hours worked per capita,” not differences in output per hour. U.S. productivity growth has accelerated since the late 1990s, which has widened the U.S. lead in per capita income, but rising hours also have been “a major factor,” the report said . . .

. . . The increase in how much Americans work reflects two trends. The first is that the proportion of working-age Americans who work has risen as more women enter the work force. In other industrialized countries, that trend has been offset by higher overall unemployment, earlier retirement and declining work-force participation of young people. Last year, 71% of the working-age population in the U.S. had jobs, compared with an OECD average of 65%.

The second factor is that among Americans who have jobs, the number of hours worked per year has edged down only slightly in recent decades, whereas hours worked have fallen sharply for workers in other countries due to shortened work weeks and increased vacation and holidays.”

Let’s consider two alternative ways to look at this question:

The first, is definitional: What is Wealth? Is it merely income or the accumulation of goods?

Wealth consists of more than that: Leisure time is a luxury, and as such is part of a person’s wealth. The quality of your education and health care also are a reflection of your wealth. Depending upon what yardstick you use as a measure, we are either the wealthiest country in the world, or the most overworked, harried, stressed out collection of work droids the planet has ever seen. The truth is probably somewhere in the middle: We willingly trade one form of wealth (time) for another form of wealth (income).

Next, let’s broaden the question: What other factors may have contributed to America’s financial success? How much of our wealth is a product of a bounty of natural blessings? What is the significance of geographic isolation and enormous natural resources to net GDP and Wealth?

From a sociological standpoint, how much of the innovation and creativity here stems from having a population laced with alpha males (and to a degree, alpha females) from every country on the globe? We are a magnet: Our political structure and free market approach attracts energetic and creative risk takers to a land where freedom and opportunity exists. I suggest this factor provides an enormous competitive advantage to the United States, and has been our secret weapon — for centuries.

But if you accept that premise, than you must confront a threat to this strategic advantage: What impact are recent immigration policies having on reducing the flow of graduate students, technologists and scientists [2] into the United States? Will some of the more onerous and/or excessive security measures reduce the attractiveness of our country to this enormous talent pool? If it does, will we slowly bleed out our advantageous economic lifeblood?

As usual, the act of reducing complex phenomena to a simple, single, “cause & effect” scenario provides little in the way of actual insight. To me, the biggest failings of modern media is this constant attempt to boil things down to an artificial (i.e., short and simple) answers which offers data, but little in the way of analysis or knowledge.

Their loss is our gain: If the media didn’t do such a lousy job on issues such as this, no one would feel the need to read blogs (like this one) . . .

U.S. Wealth Tied More to Work Than Productivity, Report Says [1]
Greg Ip
THE WALL STREET JOURNAL, July 8, 2004; Page A2


Is the balance of scientific power shifting? [2]


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2004/07/defining-wealth-productivity-or-hours-worked/

URLs in this post:

[1] WSJ’s: http://online.wsj.com/article/0,,SB108924985484258191,00.html

[2] graduate students, technologists and scientists: http://bigpicture.typepad.com/comments/2004/01/is_the_balance_.html

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