September 6, 2015    5 minute read

Work-Life Balance and Productivity

   September 6, 2015    5 minute read

Work-Life Balance and Productivity

Retail giant Amazon and its CEO Jeff Bezos have come under scrutiny yet again over the treatment of their workers. Former and current employees have disclosed the overly pressurising and sometimes demoralising environment, as they are pushed to fulfil the company’s innovative dreams. Bezos admits that there is little room for a ‘work-life balance’ within the company. The result? The second-highest employee turnover of the big American companies, with a median tenure of just 1 year.

Over the years this has created problems for Amazon, as they watched much of their skilled labour move to employee-friendly competitors: Apple, Google and Facebook. Arguably these harsh conditions were necessary for Amazon to ruthlessly engulf the retail market like it has done over the last two decades. However, this insight poses questions about culture and work ethic:

What constitutes as the perfect work-life balance, and how is productivity affected?

A case of four countries

The US, UK, Germany and France are all highly developed economies with access to similar physical and human capital. Cultural disparities however mean that approach to working life vary widely. Of the four, Americans work the longest, and are very productive; a culture that Amazon was quick to embrace. The Germans work the least amount of hours, but GDP per worker is identical to that of the UK. French workers exhibit a similar level of productivity to their German counterparts.

table 1

All figures are provided by the OECD, and are PPP adjusted.

 

In the 1980’s, the US was set fairly in the middle of the rich countries in terms of working hours. However, as other countries have cut back their hours, through legislation and/or changing attitudes, America has become a world-leader of the working week. The average American working week is 47 hours long, with only 8% of employees reporting to be working less than the considered “normal” 40-hour week. There is also a workplace culture of answering calls, emails and going to the office outside of working hours; synonymous with the expected duties of an Amazon employee. This contributes to their productivity and high GDP per worker, and thus gains in living standards.

A European perspective

The European labour market has adapted as real incomes have increased. The Working Time Directive, introduced in 2003, prohibits any employee’s working week to exceed 48 hours and also includes other employee protection, including minimum holiday time. Calls for changes in legislation seemed purely for non-economic reasons; employee health and well being was on the agenda. However what really made this possible was rising real incomes, accompanied by an approach to the working life that placed more value on leisure, rather than consumption, in comparison to the Americans.

First taking Germany as an example, average real GDP per capita post-reunification was $35, 256, compared to $43, 243 in 2012. This was a 23% rise. There was similar growth experienced in France between 1991 – 2012, increasing by 22%. However in the US, incomes soared from $47, 907 to $68, 374; an increase of 43%.

Increasing real incomes allowed many European workers to ease off on the working week and allow greater allocation of time towards holidays and weekends. This is a contributing factor as to why, although European incomes have increased, they have not experienced the same growth rate as US incomes.

 

Diminishing Marginal Utility of Wealth

Explanation can be illustrated by a simple diminishing marginal utility of income curve. A work-life balance is regarded as highly important to Europeans, and countries have seen average working hours falling as a result. There is an attitude in the air that does not quite speak the same levels of fondness for wealth as it does in the US. Yet workers are still found to be productive; credited to a very direct and goal-orientated work ethic inside of office hours. There are also strong parental protection policies, especially regarding maternity leave. This has helped to bridge the gap of gender equality in terms of employment and salaries.

Perception of work and life indeed varies greatly either side of the Atlantic; either way the Americans and Europeans embrace their ideas of wealth and leisure. The UK however finds itself quite literally stuck in the middle.

The British problem

A quick glance at the table above reveals the worrying reality of an unproductive workforce. Granted that due to generally higher living costs, purchasing power adjustment would have left an underestimated productivity. But this does not take away from the fact that the British work closer to an American working week, yet reap the financial rewards similar to that on the continent. There is an influence from either side; a taste for American wealth yet a European attitude towards leisure. Office culture in Britain blurs the lines between work and leisure, with a non-direct approach to communication and personal life perhaps hindering the productive day.

Other economic indicators must also be acknowledged, such as unemployment and labour intensity of sectors. Currently no real unemployment disparities exist between the UK, US and Germany; 5.4%, 5.5% and 4.7% respectively. Although it lies at 10.5% in France, where historically unemployment has been high. Labour intensity decreases productivity as well, but with sectors such as agriculture, hospitality and manufacturing contributing as the most labour intensive sectors, the UK productivity problem cannot be down to this.

Looking ahead in to the future, the British labour market should make a choice. The British view on work-life balance seems to indicate that the workforce will benefit from shorter working hours and an adaptation to office culture; especially as real incomes will continue to increase. In other words, the UK could learn from the German approach if it wants to improve.

The perfect work-life balance is very much a subjective view, however The US and Western Europe provide an insight into how economies can still enjoy high productivity with very different approaches to the working life.

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