Time is (not quite) money
The relationship between the two scarce resources that dominate our life is more complex than it may look at first sight
When Benjamin Franklin published his essay, Advice to a Young Tradesman, Written by an Old One in 1748, he probably did not foresee how popular one particular fragment of one of its constituent sentences would become. Nearly 30 years before Adam Smith’s The Wealth of Nations came out, Franklin explained to his hypothetical reader the fundamental economic concept of opportunity cost. The expense of a half day’s leisure includes the money not earned during that time: “(Remember that) time is money.” There is, however, more to this simple equation than meets the eye.
Both money and time are scarce resources. That means that every pound, euro or dollar (substitute your favourite currency unit) we spend on one thing, we cannot spend on something else. Every minute we are performing one particular activity, we cannot devote to another one. But we can swap one for the other, and that makes Ben Franklin’s observation that time is money so profound.
When we work for our income, we are selling our time in return for money. Even if we do not get paid by the hour, it always costs us time to do whatever it is that others are prepared to compensate us for. Conversely, we also pay other people to do work for us — whether it is a plumber fixing a leaky tap, or the neighbours’ kid mowing our lawn. And we buy dishwashers, microwave ovens and other devices that save us time — that too represents a substitution of one for the other.
Economists, and by no means the least among them, have long had an interest in time and how we use it. Gary Becker’s classic 1966 paper, A theory of the allocation of time, considers the implied cost in non-work activities, and how this enables an economic treatment of the household. In 1930 John Maynard Keynes, in an essay entitled Economics possibilities for our grandchildren, famously predicted that we would by now be working a fifteen-hour week. It doesn’t take much verifying to show that this is way off the current norm. What does that tell us of the time is money equivalence?
Money and time in the balance
In a recent episode of the (highly recommended) Econtalk podcast, host Russ Roberts speaks with economist Daniel Hamermesh on his recent book, Spending Time, the most valuable resource. He opens with the question why it is that, now that we are living longer, and are more productive and richer than ever, we also feel more pressed for time than ever? A key reason, Hamermesh says, is precisely that we are richer, while the days haven’t got longer. We have much more money, but barely more time. And time becomes relatively more precious, the richer we are, because it takes time to spend money. What’s more, we can spend our time in many more ways if we have more money, and that enlarged choice makes it feel even scarcer.
We could of course pay people to do more for us. But much of the activities that eat up our time we cannot really contract out. It’s hard to imagine how we could engage someone to lay the table or to put the rubbish out, let alone to sleep or go to the theatre for us. It’s hard to buy much more time than we do.
Time or money? (source: OECD — click link for a larger picture)
Perhaps we could decide to work less, and earn less money. This would redress the balance on both sides: we’d reduce the opportunity to spend by being less rich, and we’d increase our leisure time. This is where we find large differences between countries. Averages can hide all sorts of detail, especially since figures include part-time and seasonal work, but they do give us a general idea. The OECD chart above shows the data for 2017 (or most recent if not available).
With 1,356 hours per year, the average German worker is the closest to Keynes prediction, but it is still more than twice as much. He or she does have 158 hours more leisure time than the equivalent in France or the UK, 190 hours more than the Belgian, and a whopping 424 hours more than the American worker. That corresponds to, respectively, around 3 hours, 4 hours and 8 hours per week.
Much of this difference is explained by the number of paid holidays people take. While the legal minimum is 20 days, German workers have an average of 30 days’ paid leave (plus 10 public holidays). In the US there is no legal obligation for employers to grant staff any paid holidays. Many organizations do offer 10–20 days’ paid leave, but more than half of employees do not take up their full annual entitlement. Why do we still work so much?
The situation in the US is quite intriguing. One might speculate that, if holidays are a valued perk, employers would be able to use this as a differentiator in the labour market: offer more vacation and get the best staff. But if so many people don’t even take the holidays they do get, that seems not to be the case. Besides, the discrepancy with Western Europe is a recent phenomenon, says Hamermesh — 40 years ago there was no difference.
Reversing the equation
We can ask ourselves how come the US does not mandate a minimum number of paid holidays. But more telling is the fact that, in Europe, people tend to stick to the available number of paid days off. Taking unpaid leave is not something people do, despite the common complaints about so-called ‘work-life’ balance.
Revealed preference theory (our behaviour is an indicator of our preference) suggests that people value money more highly than time — otherwise we’d all be working 15 hours per week, as Keynes thought. But that assumes that people reason about how much time they will devote to working — and they don’t, by and large. Legal arrangements and social conformity mean we generally do pretty much what others do. We simply do not deliberately consider whether we would prefer an extra day of leisure, or the pay of an extra day work, and we do not consciously make that trade-off.
Perhaps, if Russ Roberts is right and we feel busier than ever, we should reverse Franklin’s dictum: money is time. This swaps the emphasis, and reflects much better that time is the scarcer resource of the two, the one that most constrains how we live our lives. Having 25% less money, for example, seems like a massive drop, but is the life of someone who actually has 25% less money than we have right now that different from ours? Not really. Now picture having 25% less time, and you’ll see what I mean.
More importantly, it implies that time is the more important of the two, and that we have it in our power to acquire more of it, by giving up money. Time to spend on things we enjoy, time to spend with our loved ones. “Money is time” tells us that we have that choice.
Originally published at koenfucius.wordpress.com on April 12, 2019.