Keynes Was Right

By Mark Sowers

February 2018

In 1930 economist John Maynard Keynes predicted that in 100 years (meaning 2030) people would need to work only 15 hours per week. He expected that economic growth and new technology would bring efficiency and increases in productivity that would allow workers to complete all their weekly tasks in only 15 hours.

With only 13 years to go to 2030, and so many of us still working 40 hours or more each week, it appears that Keynes was wrong. In fact there have been many essays (1, 2, 3) written about why he was wrong.

Except that he wasn't. Keynes was right - on average. He just misjudged how this average reduction in work-hours would affect each individual worker.

Imagine a company of 10 employees in 1930. Each employee works 40 hours. Some employees are managers, or are highly trained, and are paid more than other employees doing lower-skilled tasks. But these 10 employees, working 40-hour-weeks, put in a total of 400 work-hours each week.

Keynes predicted that with increased efficiency, the number of hours needed to complete all tasks would be reduced to 150 per week for 10 employees.

Where Keynes made his error was in assuming that this reduction in hours would be applied equally to all employees; meaning each employee would only work 15 hours each week. But something else happened instead.

Managers and bosses realized that instead of reducing everyone's hours and paying employees the same wage for working many fewer hours, the company could save money by simply eliminating some employees and redistributing their tasks to the remaining employees.

After all, these employees are already used to working 40 hours per week. They're simply more efficient, and are now able to do the work of 2 or 3 people. As a result the 150 total work-hours became distributed more like this:

And as a bonus for their 'brilliant' idea to save the company money, managers and bosses were awarded a percentage of the savings, with shareholders receiving the rest.

When viewed this way, it suddenly becomes clear why inequality has increased so dramatically and why CEO salaries are so much larger than those of everyday employees, and why income distribution graphs actually look like this:

So why is unemployment at only 4%, instead of the 60% expected from the previous scenario? I would argue that it actually is quite high; it's just hidden in several ways:

  1. There are many people who have simply left the workforce permanently. These people are not counted in official unemployment statistics.
  2. Many people are under-employed. Meaning they are not working at their full capacity like they used to. They may indeed be working only 15 hours per week, but they are only being paid about 1/4 of what a full-time employee is paid.
  3. This increase in efficiency has indeed created new jobs. With bosses having much more disposable income, they are able to pay for services they previously couldn't afford. Plus, with so many people chasing many fewer jobs, the cost of labor has decreased dramatically. The combination of these two factors has allowed for the creation of jobs at the very low end of the pay scale that previously didn't exist. How many stores used to employ someone to simply stand at the door and greet customers when they entered? With so many workers desperate for work, any work, at any pay, this is now possible.

So today's workforce actually looks more like this:

With such an extreme shift in work and pay patterns it is clear that the free market by itself is not an effective mechanism to equitably distribute gains from increased efficiency and productivity. As a result it becomes necessary to look at previously unheard of approaches to restore the more equitable income distributions of the past (e.g. Universal Basic Income) so that the entire population can benefit from these gains and Keynes prediction can move closer to reality.

Is redistribution really necessary? Shouldn't everyone be responsible for themselves instead? Read my take on the subject.