Tyler Cowen: An overlooked way to reduce income inequality? Hard work.

Tyler Cowen explores a surprising factor in reducing income inequality—hard work. Drawing on research from top institutions, Cowen reveals how effort and a desire to work harder account for 20% of lifetime earnings variance. He delves into the American work ethic, contrasting it with European norms, while acknowledging that hard work isn't the sole solution..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..By Tyler Cowen.The various bestselling books on income inequality cite a variety of driving factors. Robert Kuttner blames global capitalism. Paul Krugman pins it on bad domestic economic policies. Thomas Piketty writes of capitalists as if they are rentiers, extracting royalties from the system..There is another factor that tends to go unrecognized: the time-honored virtue of hard work. If you work harder — and smarter — you will earn more money. This would not have surprised my grandmother, but in today's intellectual world, old truths sometimes need to be repeated. And studied..Economists from Princeton, Vanderbilt and the Federal Reserve Bank of St. Louis have estimated just how much hard work contributes to inequality in lifetime earnings. While the answer depends on context, they arrived at an average for the US workforce: About 20% of the variance in lifetime earnings can be explained by differences in hours worked..That's a lot, but it is far from everything. Other explanatory factors probably include where you were born and grew up, who your father happened to know — and sheer luck..The decision to work harder operates on at least two levels. First, you put in more total time, which leads to higher lifetime earnings. Second, you invest more in your human capital, which makes you more productive. Between one-third and one-half of the higher income for the harder workers stems from this human capital channel. One lesson is that if you are going to work hard, you should do so relatively early in your life, so as to reap the human capital benefits for future years..Another crucial point is that those who work harder do so because they want to. There can be different kinds of heterogeneity in ability, including in learning capability or initial human capital. But in the researchers' model, 90% of the variation in earnings due to hard work comes from a simple desire to work harder. Note again this is an average, so it does not necessarily describe the conditions faced by, say, Elon Musk or Mark Zuckerberg..The study focuses on the US, but it has implications for Europe as well. In France, for instance, work is limited to 48 hours per week, with a standard week of 35 hours. That reduces average earnings and inequality in earnings, since it is harder for the top achievers to keep making more money. This research finds that the losers from this regulation are found at all parts of the wage distribution, not only at the top..Some Americans view European workers as lazy and unmotivated. But in the 1970s, when European tax rates and regulations were lower, Europeans worked on average somewhat more than Americans did. So it is possible that, if Europeans were allowed to work more, they would..This research measures the averages, but other economists have focused on behavior at the extremes. In virtually all societies in human history, elites have used their wealth to work less and enjoy life, and sometimes to wield power over others, as in the Roman Empire. The wealthy American, in contrast, seems to want to work ever harder..Is this because of the extreme sums of money they can earn? Or is it the power of the American work ethic? Perhaps these two forces are related. In any case, America's wealthy class is distinctive for wanting to work so hard. I periodically hear Europeans commenting on how strange this is — don't you Americans care about more than just money? — and I often reply by pointing out that one of the wealthiest people in the world is Bernard Arnault of France..I should also point out that many low earners work very hard and are very conscientious, yet do not get very much ahead. They might lack the right skills or education, or have family and child-care obligations, which limits their opportunities for advancement. Hard work alone is not a solution to income inequality..Nonetheless, hard work does indeed matter, as does a willingness to work hard. It is good to have economists quantifying what most people would say is just plain common sense..Read also:.Frans Cronje's bold prediction: Is the GNU South Africa's last hope? – Mike Berger.The Economist: Bartleby – What makes a good manager?Career slashing: The hustle that's redefining success and stress.© 2024 Bloomberg L.P.

Tyler Cowen: An overlooked way to reduce income inequality? Hard work.

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