Bracing for a glut of leisure time

August 6, 2009

The United States has been labeled “no vacation nation.” Americans are notoriously diligent compared with citizens of other rich nations — putting in long hours and often not even using the skimpy vacations to which they are entitled.

Now more Americans are being forced to take it easy. Even for those who are keeping their jobs, many companies are cutting hours and imposing “shotgun” vacations in an effort to economize.

Government data have shown the length of the average working week plunging faster than in previous recessions. Time devoted to work has already fallen twice as much as during the slump of the early 1990s. No improvement is expected from the payrolls report on Friday.

This is likely to be a double-edged sword. Behavioral economists believe the respite from the rat race may be good news for those who are financially stable enough to enjoy more spare time. But it is further bad news for the unemployed and may delay the day when companies actually need to start hiring again.

The silver lining, though faint, is worth considering. Behavioral economists have long complained that Americans work too hard for their own good. People typically overestimate the boost to happiness from the extra consumption that longer hours permit, and understate the “hedonic” fillip from leisure time. Americans rank among the most hard-working folk in the rich world, laboring for an average of almost 1,800 hours a year. The Dutch, by comparison, put in a puny 1,400 hours, according to OECD figures — a difference that is equivalent to an extra 10 weeks of holiday for a full time employee.

“Americans who are not in chronic financial stress and can cope with the emotional blow of a lower salary, may find themselves better off for the spare time,” says Dan Ariely, author of “Predictably Irrational”, a book on behavioral economics. Obviously these are big provisos.

Take the American worker off the psychologist’s couch and the news is not so good. The figures are now indicating huge slack in the labor market. Economists are increasingly preoccupied by U6 — a broad measure of unemployment that includes those working part time because they can’t find a full time position. This is now 16.5 percent of the workforce.

The average work week has fallen to 33 hours, down from 33.8 at the start of the recession in December 2007 — outpacing even the slide in the deep recession of the early 1980s. For those with heavy debt burdens, this could be enough to push them over the edge.

Many companies seem to believe they can trim hours — and pay — still more, even though they may soon need to ramp up production, according to the Society for Human Resource Management.

For the unemployed, this is particularly ominous. Job creation is usually the last component of an economic recovery to slot into place. After the end of the 2001 recession it took 21 months for the labor market to turn around, and there is a threat that this time the wait could be even longer.

As the output recession ends — hopefully about now — companies will have great latitude to squeeze extra hours out of existing employees and part timers before they need to hire.

The “no vacation nation” should brace for the greatest leisure glut in its post-war history. This makes the robust recovery in job growth so desired by America’s politicians even harder to envisage.

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