Between Firm Changes in Earnings Inequality: The Dominant Role of Industry Effects

Analysis from New York Fed shows that Americans spend 60 million fewer commuting hours each day vs. pre-pandemic. They allocated this time primarily toward leisure activities and sleeping, while reducing overall work hours.

“…In the aggregate, Americans now spend 60 million fewer hours traveling to work each day. We investigate how people spend this saved time on other activities. The chart above shows how one hour of foregone commute time is allocated toward other activities. First, we find a substantial fall in time spent working. Overall paid-work hours fell because of substitution toward other activities throughout the day: we see notable increases in leisure time and sleeping. The rise in leisure was particularly pronounced among younger Americans, who reported spending more time at social events, eating at restaurants or bars, and exercising….” David Dam, Davide Melcangi, Laura Pilossoph, and Aidan Toner-Rodgers, “What Have Workers Done with the Time Freed up by Commuting Less?,” Federal Reserve Bank Of New York, https://libertystreeteconomics.newyorkfed.org/2022/10/what-have-workers-done-with-the-time-freed-up-by-commuting-less/

What Have Workers Done with the Time Freed up by Commuting Less?

The COVID-19 pandemic has dramatically changed the way Americans spend their time. One of the most enduring shifts has occurred in the workplace, with millions of employees making the switch to work from home. Even as the pandemic has waned, more than 15 percent of full-time employees remain fully remote and an additional 30 percent work in hybrid arrangements (Barrero, Bloom, and Davis). These changes have substantially reduced time spent commuting to work; in the aggregate, Americans now spend 60 million fewer hours traveling to work each day. In this post, we investigate how people spend this saved time on other activities. Using detailed data from the American Time Use Survey (ATUS), we find that employed individuals allocate their saved commute time toward leisure activities and sleeping, while reducing overall work hours.

Measuring Time Spent

The ATUS is a nationally representative survey that measures both the amount of time people spend on various activities and where these activities take place. ATUS respondents are randomly selected from a subset of households in the Current Population Survey, allowing us to link demographic and employment information to respondents’ time use information. Because COVID-19 disrupted the survey’s data collection between March 18 and May 9 of 2020, the survey results for 2020 reflect data only from May 10 to December 31. To make comparisons with prior years, we restrict the data to this period in the other years as well.

To examine how workers allocate their saved commute time, we apply the methodology of Aguiar, Hurst, and Karabarbounis to the COVID-19 period. For those interested in the details, we aggregate individual ATUS responses to the state-level and exploit variation across states in the extent of commute time reduction. After categorizing more than 400 time use activities into nine major categories, we regress yearly changes in time use for each category on changes in commute time. Our first-differences approach enables us to account for time-invariant state characteristics, and we also include a variety of state-level control variables to account for worker composition. Across specifications, we restrict our analysis to employed individuals in order to exclude reductions in commute times due to job loss. Additionally, to account for the possibility that COVID-19 induced firms to cut hours just as employees were shifting to remote work, we also consider a sample of only full-time employees and find similar results.

Changes in Time Use

The main results are presented in the chart below in which we show how one hour of foregone commute time is allocated toward other activities. First, we find a substantial fall in time spent working; the decrease in hours worked away from home is only partially offset by an increase in working at home. This is in line with results from Bloom, Han, and Liang, who find that remote work led to a decrease in overall hours worked. Moreover, our findings help reconcile earlier work on commute times, which found that even though employees reported allocating 35 percent of their saved commute time to work, they spent fewer total hours in paid employment (Barrero, Bloom, and Davis). Our results from the ATUS suggest that although individuals may have increased time working in the precise time-slot they used to commute, overall paid-work hours fell because of substitution toward other activities throughout the day.

Second, we see notable increases in leisure time and sleeping. The rise in leisure was particularly pronounced among younger Americans, who reported spending more time at social events, eating at restaurants or bars, and exercising. Older age groups, on the other hand, tended to allocate more time to nonmarket work, such as activities related to childcare, the maintenance of the household, repairs, and meal preparation.

Who Are the Activities Conducted With?

The ATUS also includes information on who physically accompanied the respondent during each activity. We use this variable to classify which activities were done with people outside of the immediate household. We categorize solitary activities and those with household members into one category, and activities with friends, co-workers, clients, and non-household family members into the other. As we would expect, the next chart shows that time spent on activities done alone or with household members increased, such as leisure (+2.30 hours) and nonmarket activities (+0.69). Differentiating by age, we see that younger people were the only group to significantly increase their leisure time with non-household members (+1.13), likely reflecting the differential risks of COVID-19.

Our results show important relationships in the substitutability of time use. The findings lend credence to the various reports on employees’ preferences for flexible work arrangements, given that cutting the commute enables people to spend their time on other activities, such as childcare or leisure. This added benefit of working from home—for those who want it—will be an important consideration for the future of flexible work arrangements.

Some of the World’s Largest Employers No Longer Sell Things, They Rent Workers

The list of the world’s largest employers was once dominated by household names like Ford Motor Co., J.C. Penney Co., and General Electric Co., companies that made and sold things.

A Analysis conducted for The Wall Street Journal shows those names are nowhere to be found on that list today. In their place are large outsourcing companies like Compass Group PLC, Accenture PLC and other businesses that essentially lease workers to clients.

Of the top 20 global employers in 2017, five are outsourcing and “workforce solutions” companies, according to an analysis by S&P Global Market Intelligence. In 2000, only one employer in the top 20—International Business Machines Corp., which offers outsourced IT services among its many businesses—fell into that bucket.

Outsourcing companies are vacuuming up the world’s workers as traditional employers are handing over more of their tasks to nonemployees, a shift that has transformed the way corporations do business and had profound effects on workers’ prospects and pay.

The past two decades have been boom times for the outsourcing sector, with the annual value of contracts growing to $37 billion in 2016 from $12.5 billion in 2000, according to research and advisory firm Information Services Group Inc. III -1.68% The market is expected to rise again in 2017 and 2018, thanks partly to double-digit growth in big technology projects as more companies transfer massive volumes of data to the cloud.

For employers, dispatching work to outside companies saves money and lets them access skills they need without adding to their headcount. Workers in jobs that have gone to outsourcers, though, can feel moved around like chess pieces, either displaced entirely or re-badged as employees of a service provider, sometimes with fewer benefits and lower pay. A growing body of economic research suggests that outsourcing is a significant factor fueling the rise of income inequality in the past decade.

“If all the engineers are in one firm and the cleaners are in another, you get less diversity within firms and more inequality across firms,” says Nicholas Bloom, an economist at Stanford University.

On behalf of loan-servicing companies, Accenture’s people collect debts from homeowners who defaulted on their mortgages. For large insurance clients, doctors and nurses employed by Accenture make wellness calls to diabetes patients. For Alphabet Inc.’s Google, it oversees contractors who review content for the search giant.

“We become part of our clients’ operations, we become part of the talent that’s in their operations,” says Debbie Polishook, group chief executive of Accenture Operations, which houses the company’s outsourcing work.

“When CEOs tell me they want to keep all of their talent, my response is ‘Why?’” says longtime Kelly Services Inc. boss Carl Camden, who retired earlier this year. “ ‘If they’re not our people, how can they be our people?’ is a tautology you have to work them through.”

The breadth of services on offer from outsourcing firms is staggering. Compass Group was founded in 1941 to run factory cafeterias in wartime England, eventually branching out into corporate catering. It now employs more than 550,000 and counts among its subsidiaries firms like Eurest Services, which staffs and manages mailrooms for clients, provides them with full-time receptionists, sets up their conference rooms for meetings and operates their warehouses. Eurest’s clients include Google, SAP and Pfizer Inc.

With so much work done outside the company, businesses employ fewer kinds of workers than they used to, a change that economists say has fueled income inequality.

Outsourcing leads to workers being clustered in companies according to their skills, which affects pay and benefits. A bank used to employ janitors and security guards, in addition to traders and salespeople. For the sake of morale and a sense of fairness, management had an incentive to limit the disparities in employees’ compensation. That had the effect of boosting the pay of lower-skilled staff.

Now, those janitors might just as often work for an outside firm like Denmark’s ISS AS, one of the largest facility services companies in the world, while the high-skilled workers remain employed by the bank—a trend economists call occupational sorting. Pay for outside workers tends to be lower because outsourcing firms need to keep costs low to compete for contracts and because the workers don’t reap rewards from the financial successes of the bank.

Companies that provide security guards or IT help-desk workers have to show they can do the job more cheaply than the client can, keeping a tight lid on wages for those workers, says David Weil, a Labor Department official in the Obama administration and an expert on contract labor.

Outsourcing firms’ workforces, though, may shrink as algorithms take on more tasks, says Steve Hall, a partner at ISG.

“The large outsourcers are using a combination of analytics and automation to significantly reduce the need for labor,” he says.
I'm one of the opinion editors atDow Jones MarketWatch, a no-paywall website about all things money. We get about 30 million unique visitors a month, mostly from the U.S. I'm reaching out because I have your book "The Upside of Inquality" and just read theNew York Times article about all the contract workers in Silicon Valley. I'm looking for an op-ed on what this says about the changing nature of work and the political ramifications of this sort of change. Is this a topic you'd be interested in writing about for a broad audience? If so I'd love to talk. I look forward to hearing from you. Silvia Ascarelli

Lauren Weber, "Some of the World’s Largest Employers No Longer Sell Things, They Rent Workers,"Wall Street Journal, December 28, 2017, https://www.wsj.com/articles/some-of-the-worlds-largest-employers-no-longer-sell-things-they-rent-workers-1514479580

"...Urban U.S. labor markets today are vastly more educated and skill-intensive than they were ve decades ago. Yet, urban non-college workers currently perform substantially less skilled work than in prior decades. This deskilling reflects the joint effects of automation and international trade, which have eliminated the bulk of non-college production, administrative support, and clerical jobs, yielding a disproportionate polarization of urban labor markets. The unwinding of the urban non-college occupational skill gradient has, I argue, abetted a secular fall in real non-college wages by: (1) shunting non-college workers out of specialized middle-skill occupations into low-wage occupations that require only generic skills; (2) diminishing the set of non-college workers that hold middle-skill jobs in high-wage cities; and (3) attenuating, to a startling degree, the steep urban wage premium for non-college workers that prevailed in earlier decades. Changes in the nature of work|many of which are technological in origin| have been more disruptive and less beneficial for non-college than college workers...."David Autor, "Work of the Past, Work of the Future," National Bureau of Economic Research, February 15, 2019, https://economics.mit.edu/files/16724

Link and source were there just @ the bottom. citation: Brynjolfsson, Erik and Andrew McAfee and Michael Spence, "New World Order: Labor, Capital, and Ideas in the Power Law Economy"Foreign Affairs, July/August 2014. Available at:http://www.foreignaffairs.com/articles/141531/erik-brynjolfsson-andrew-mcafee-and-michael-spence/new-world-order

Brynjolfsson, Erik and Andrew McAfee and Michael Spence, "New World Order: Labor, Capital, and Ideas in the Power Law Economy"Foreign Affairs, July/August 2014. Available at:http://www.foreignaffairs.com/articles/141531/erik-brynjolfsson-andrew-mcafee-and-michael-spence/new-world-order