Be prepared to work more

The Federal Reserve Bank of Philadelphia released its forth quarter suvery of forecasters today. The survey predicts that economic growth will be stronger than expected in coming years and that unemployment will be higher compared to last quarter's survey. Those two factors combined are likely to mean more work for those Americans who are working.

The basic conception of national output (Y) is usually given as Y=f(K, AL). This means that output is a function of capital (K) and labor (L) with a multiplier for technological advancement (A). The new Philadelphia numbers indicate that L is going to continue to decline for some time. The capital stock, K, seems unlikely to rise anytime soon. As the figure below shows non-defense capital goods orders have declined drastically this year. While the figure appears to be leveling off, it will likely take some time to regain lost levels.

This leaves A to drive growth. Increases in A are by no means synonymous with more work. During the tech bubble A increases were the result of things like e-mail and internet access. In the present recovery, the growth is likely to come from one place: hours 1. Of course hourly increases are not going to be distributed evenly. The average workweek for nonsupervisory production works is 33 hours a week, its lowest level since WWII. That of course is linked to the lower panel shown above, with lots of unfilled orders businesses just are not producing right now.

The situation may not be all bad news. The New Yorker ran a story in March that those who are working are seeing steady wage increases. Plus research out this year indicates that it’s the un- and under-employed who are the most likely to experience depression. Happy work hours.

1. We could of course think of more hours as an increase in L. I’ve eschewed that here so as to separate out the impact of number of people employed and work per person employed.