One billion hours: what’s happening to the working week?

Towards the end of 2015 the jobs market passed an important-sounding milestone – we now work more than one billion hours each week. This has been wholly driven by strong employment growth because at the individual level average weekly hours have actually fallen slightly over the past year, reversing the upward trend of the previous few.

The path of average working hours is an interesting indicator for many important trends, including wage pressure, worker preferences, and future employment growth. As such, the implications of the recent fall are explored in detail in today’s ONS Economic Review, and in a recent speech by Bank of England MPC member Martin Weale.

Here’s five take-aways from what’s happened and may happen to the length of the working week.

1.     Recent wage growth looks stronger when we consider hourly pay

The latest edition of our most timely pay data showed real earnings growth dipping back below two per cent, despite historically low inflation. With employment growing exceptionally strongly, many have been scratching their heads as to why the pressure on pay hasn’t been kept up.

Part of the answer lies in the fact that our timely pay data provides only a weekly average, which falling weekly hours clearly bear down upon.[1] If we expressed average wages per-hour rather than per-week, the most recent growth rate would have been 2.6 per cent (and above the pre-crash trend) rather than the headline 1.9 per cent.

2.     Further falls in hours might create wage and inflationary pressure

Both Weale and the ONS highlight that the long-term trend in the decades (and centuries) before the 2008-09 financial crisis had been one of a shortening working week. This is associated with rising real hourly wages – people spend a bit more time on leisure and a bit less working when they can get more income for each hour of work they do. If the recent decline in hours represents a reversion to this long-term trend and a positive choice on the part of workers, then all else equal it suggests a tightening labour market and therefore increasing wage (and particularly inflationary) pressure. But the ‘if’ and ‘all else equal’ are crucial here – other developments mean pressures are by no means a given. It will be interesting to see the Bank’s take in tomorrow’s Inflation Report.

3.     We may just be witnessing a return to normal holiday and leave patterns

One such ‘other development’ might be a short-term correction in the tendency of workers to take time out. The rise in average hours during the downturn and recovery period was partly driven by fewer holidays or less sick leave – perhaps through lack of confidence – and this pattern has started to reverse recently. So falling hours could just be the unwinding of the increased ‘presenteeism’ that arose in the crisis.

On the other hand, increased confidence to take time off might go hand in hand with other things workers do when they’re confident in their prospects, in particular moving from one job to another. Job-to-job moves are strongly associated with pay progression and career advancement, and can provide a leading indicator of wage growth. So a more confident workforce might feed through to wage pressure via other channels.

4.     Declining working hours doesn’t mean underemployment has gone away

A return to the long-term trend of declining working hours (assuming it reflects a positive choice) might suggest that the underemployment that built up during the downturn has been dealt with, but in fact underemployment remains elevated on pre-crisis rates. How?

The ONS shows that the recent hours decline is entirely felt by full-time workers, and Weale’s analysis implies that workers paid salaries rather than hourly (who tend to earn more) have a greater propensity to reduce hours as conditions improve. In contrast, we know that underemployment is strongly concentrated among part-time and lower-paid workers. So we have tightening in working hours in one part of the labour market and continuing slack in another. This means that any upward pressure on labour costs precipitated by hours falls may not be broadly felt.

5.     Full employment might accelerate recent hours trends

With the employment rate at a record high, attention is turning to how far we might be from full employment. We’ve highlighted that achieving such employment gains will rest on bringing new participants into the workforce, particularly disabled people, the low-qualified, single parents and older people. These groups are more likely to enter work on part-time hours.

So expanding labour supply on the road to full employment may well accelerate the decline in working hours, as employers engage with new groups who need and want more flexibility than the existing workforce.

Conclusion

It’s too early to read all that much into very recent changes such as the slight decline in working hours in the past year, but understanding the balance between temporary and longer-term drivers, and the implications for wage growth, will be a key economic consideration in coming months and years.

If recent changes represent a return to the long-term trend we might expect to see a positive feedback loop between rising real wages and a shortening working week. And if that’s accompanied by continued employment growth on the road to full employment – more people each working a bit less – the living standards boost from a better balance between income and leisure will be felt across society.

[1] This is most obviously the case for workers paid hourly or for overtime. But falling hours could also bear down on pay indirectly for those paid fixed weekly or monthly sums, if they entail a reduction in the worker’s overall productivity, and if this reduction – in time – holds back the worker’s wage growth.