Leisure-Enhancing Technological Change
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Leisure technologies, such as the internet & TV, have contributed to a decline in TFP growth by altering time allocation patterns. Average hours worked have decreased by -0.5% annual growth rate across advanced economies, while leisure hours have increased.
“…The theory highlighted that the size of the economy - both in terms of its population and the level of income-per-capita - determines the conditions under which non-rival leisure technologies emerge and gain importance. The evidence suggests that this is indeed an important feature of the leisure economy. But other factors play a role too....One such factor is the share of time that households can feasibly allocate to marketable leisure. The first half of the 20th century saw a dramatic increase in this share. Two historical events were key: the introduction of the two-day weekend in the 1930s and the gradual adoption of household appliances - the washing machine, the flush toilet, the vacuum and others - from 1920s through 1940s and beyond. Both of these freed up time for other activities. It is plausible that this has acted to direct resources towards inventions and activities that complement leisure and leisure time, in the spirit of the directed technical change literature...... Incorporating these mechanisms in the model and assessing their empirical validity is an interesting avenue for future work. Second, the audio-visual entertainment revolution that started in the 1920s and rapidly accelerated in the 1950s has been propelled by the introduction of general purpose technologies that allowed for the signal to be transmitted to households: the radio receiver and the television set. More recently, invention of PCs, smartphones and tablets made it possible for the free leisure technologies to spread far and wide....To analyze these one could bring in the insights from Fernald and Jones (2014) on modeling general purpose technologies into the framework developed here. An alternative that stays closer to the current model is to view the arrival of these technologies as exogenous shifts in the productivity parameters of the leisure technology production functions: each of these GPTs made the delivery of free leisure services easier and cheaper and boosted the ability of the platform to turn consumers’ time and attention into brand equity...... It shows that such changes effectively turbo-charge the development of leisure technologies, exacerbating the effects discussed in the main body of the paper and potentially explaining the rise of the ever-powerful platforms. Relatedly, the arrival of the internet, social media and smartphones has arguably been associated with a culture shift towards online activities among consumers. And the dominance of search engines in consumer search, targeted advertising, and the ability to hook people onto devices have likely shifted firms’ perception about the importance and effectiveness of brand equity investments. Again, the present theory makes it possible to provide a preliminary picture..... shows that these changes are associated with further rapid increase in leisure technologies, sharper slowdown in hours worked, and lost ground in terms of productivity of the non-leisure part of the economy. These patterns ring true with the facts across advanced economies over the past 15 years or so. An open question is how the rise of the leisure sector interacts with heterogeneity, both at the household and at the firm level. On the household side, it is interesting to study how time allocation decisions interact with income and wealth inequality. For example, disaggregated evidence on time allocation across the income distribution shows that poor individuals increased their leisure more than the rich.... Allowing for household and income heterogeneity in the presence of leisure-enhancing technologies could bring out new insights and aid the debate on leisure-inequality. Considering firm heterogeneity may be important, too: the current setting is well suited to analyze equilibrium outcomes when heterogenous firms compete not only in prices but also in intangible assets. More productive firms may devote more resources to brand building, cementing their market share, with interesting implications for market power (De Loecker and Eeckhout, 2017). As leisure economy becomes ever more important going forward, the framework built here can be used as a base for explorations of some of the pressing policy questions, such as optimal taxation of platforms or competition- and anti-trust policy in presence of zero-price services. These ideas formulate an exciting research agenda for economics in general, and macroeconomics specifically, in the years to come….”
Lukasz Rachel, "Leisure-Enhancing Technological Change," Working Paper, April 24, 2020, https://drive.google.com/file/d/14SbcIolO3EBpgPtE466oty351tOkp9Xo/view
“….leisure-enhancing innovations are ubiquitous and yet their cost of production as a share of GDP is relatively small. TV channels, websites, social media and free newspapers are products that billions of people use every day, and businesses involved in supplying these services are highly profitable and very large….Measured at the cost of production the value of free services has been relatively stable at about 1-1.5% of GDP over much of the past century in the United States, rising recently due to the arrival of digital technologies: not negligible, but certainly not large either. The theory developed in this paper stresses the non-rival nature of leisure technologies, and underscores that leisure-enhancing technological change may be of first-order macro importance even if the share of the sector is negligible in aggregate.... The second feature of the data that this theory speaks to is the decline in average hours worked and a corresponding rise in leisure hours across developed economies over the past seven decades. Over the entire post-WW2 period average hours worked have been on a downward trend, with annual growth averaging around −0.5% across advanced world....The model developed here offers a novel way to reconcile the falling hours with other features of balanced growth. It does so bylinking the time allocation decisions to the advancement of leisure technologies. This mechanism is backed up by the evidence that changes in time allocation patterns have indeed been tightly linked to technology....Third, this paper can shed new light on the Solow Paradox (Solow, 1987). Few would disagree that current period features rapid technological change, and yet economy-wide productivity growth remains weak. This paper offers a way to reconcile the paradox: while clearly visible and salient to the consumer, leisure-enhancing innovations can indirectly diminish productivity growth through their impact on the effective growth of labor supply, and their true value is unlikely to be captured in the GDP statistics….”
Interesting new paper (complicated) argues that the growth of leisure technologies (Internet, Television) because the tech is so cheap has pushed people to spend more time on leisure, and this time diversion has contributed to the decline in TFP growth through changes in time allocation.
But I like the theory. I have often wondered why, if consumption is getting better, consumption doesn’t go up and investment go down. I get why work might go down. But both should go down. What is it about investment that allows it to compete with consumption, which keeps getting better? I’ve never seen anyone try to address the question.
Ed Comment:I’m skeptical of the analysis however. These trends occurred simultaneously, so of course it correlates. You need a lot of data with circumstances where the casual factors did and didn’t occur. I’m not sure they really have much.