Firms will pay workers a higher wage for higher effort. So for every 1% increase in effort they will pay 1% more in wages. That's valuable for firms because all the capital that workers use will be utilized 1% more as well.
Why don't workers want this additional pay for more effort? It's the same reason workers want a higher rate for overtime - beyond a certain level of effort, workers value their leisure more than an increase in income.
You write: "What's the link between this phenomenon and the increase in house prices? That's a genuine question, it's not obvious to me"
Do you mean the increase in house prices during the 2005 period or more recently? There is no connection between the housing bubble in the mid-2000s and higher effort levels.
Very interesting ideas. Regarding the housing market, there's a fair argument to make that, until 2020, America never recovered psychologically from the 2008 meltdown, even though prices had long been rising. You hit on a correct theme of zoning and permitting, and in fact the cost of all permits, even single family, has SOARED post 2008, even outside of the normal California culprits.
You're also on the right track with the narcotics angle.
However, might I posit your piece in a slightly different way? Considering the socio-cultural impediments that exist in the US population relative to the result of the world, its a surprise that the US ePop ratio is ANYWHERE near European nations at all. The US adult Obesity rate is 36% versus 20-22% for europe (UK 25%), while 8% of US adults have a felony conviction on record vs likely 1-2% for Europe. Couple that with your aforementioned narcotics use, suicide and (likely undiscussed) - mental illness and homelessness. These factors all have devastating impact on employment rates and should permanently depress the US employment rate, which has largely not been the case.
However, these factors did not magically appear recently, and they were a factor in 2000, and 2005 , even when the US ePoP was still similar to Europe. Post-2008 is where ePop really drops. And I think, this too is explainable. First culprit has to be Grad school, as this should knock out a portion of the 25-40 labor force. Official graduation statistics show a 25% increase in Masters degree graduation rates from 2007 to 2012 (but of course, that’s just graduation) – and anecdotes did suggest that a large portion of people did ride out the 2009 recession in various forms of grad school and that might not fully reflect in grad rates. But, what’s pretty clear is that Masters/Doctorate degrees (and even bachelors to a lesser extent) remain sizeably elevated since 2005 and, based on the grad rates per year, should account for at least 1% decline in ePoP, if not more.
Next is construction. As you and I agree – US construction has been in an almost 13-year hiatus from normalcy. Construction wages have been growing for sure over the past 5 years. But it certainly poses the question – what happened to all the construction laborers from 2007 – 2011? How many were able to retrain? What would be intriguing to look at is the ePoP data as it related to a larger economy with substantial amount of unskilled labor that experienced a housing crash – perhaps Italy, but especially Spain. Spain’s male 25-54 employment rate CRATERED compared to the US. It fell a full 18%!! Of course Spain’s economy was hit harder, but its also heavily construction based, and even though construction returned, you can see that the participation rate is still several percent below 2008 levels.
Third, we have to consider austerity. But I’m not talking Federal, which is small potatoes, I mean state. Even though federal spending has been growing, states have mostly collectively cut spending, often massively, since 2008. Even as borrowing rates were fractional, states cut services, and much revenue was allocated to pensions. State government labor loss shares a similar fate to construction labor – it requires retraining and cannot be easily transitioned.
Fourth, and this one I can’t quantify as much, but it’s a good sense for why the ePoP gap may not narrow as much going forward in the US. Small business applications have been immense in the US post-COVID. And I’m not entirely certain that every small business owner will always show up in the employment statistics
And finally, and maybe more importantly, lets consider the following fact. From 2015 to 2019, the US ePoP rate increased 4 full points, and massively narrowed the ePoP gap relative to the rest of Europe. The US is a far more divided society with a substantially larger portion of the population that is unable to participate in society’s benefits relative to Europe. So to see that the gap has shrunk as much as it has is, imo, a testament to the US resilience, rather than a symptom of its issues.
Tiramisu, thanks for your comment.
Firms will pay workers a higher wage for higher effort. So for every 1% increase in effort they will pay 1% more in wages. That's valuable for firms because all the capital that workers use will be utilized 1% more as well.
Why don't workers want this additional pay for more effort? It's the same reason workers want a higher rate for overtime - beyond a certain level of effort, workers value their leisure more than an increase in income.
You write: "What's the link between this phenomenon and the increase in house prices? That's a genuine question, it's not obvious to me"
Do you mean the increase in house prices during the 2005 period or more recently? There is no connection between the housing bubble in the mid-2000s and higher effort levels.
Very interesting ideas. Regarding the housing market, there's a fair argument to make that, until 2020, America never recovered psychologically from the 2008 meltdown, even though prices had long been rising. You hit on a correct theme of zoning and permitting, and in fact the cost of all permits, even single family, has SOARED post 2008, even outside of the normal California culprits.
You're also on the right track with the narcotics angle.
However, might I posit your piece in a slightly different way? Considering the socio-cultural impediments that exist in the US population relative to the result of the world, its a surprise that the US ePop ratio is ANYWHERE near European nations at all. The US adult Obesity rate is 36% versus 20-22% for europe (UK 25%), while 8% of US adults have a felony conviction on record vs likely 1-2% for Europe. Couple that with your aforementioned narcotics use, suicide and (likely undiscussed) - mental illness and homelessness. These factors all have devastating impact on employment rates and should permanently depress the US employment rate, which has largely not been the case.
https://obesity.procon.org/global-obesity-levels/
https://techjury.net/blog/criminal-record-statistics/
However, these factors did not magically appear recently, and they were a factor in 2000, and 2005 , even when the US ePoP was still similar to Europe. Post-2008 is where ePop really drops. And I think, this too is explainable. First culprit has to be Grad school, as this should knock out a portion of the 25-40 labor force. Official graduation statistics show a 25% increase in Masters degree graduation rates from 2007 to 2012 (but of course, that’s just graduation) – and anecdotes did suggest that a large portion of people did ride out the 2009 recession in various forms of grad school and that might not fully reflect in grad rates. But, what’s pretty clear is that Masters/Doctorate degrees (and even bachelors to a lesser extent) remain sizeably elevated since 2005 and, based on the grad rates per year, should account for at least 1% decline in ePoP, if not more.
https://educationdata.org/number-of-college-graduates
Next is construction. As you and I agree – US construction has been in an almost 13-year hiatus from normalcy. Construction wages have been growing for sure over the past 5 years. But it certainly poses the question – what happened to all the construction laborers from 2007 – 2011? How many were able to retrain? What would be intriguing to look at is the ePoP data as it related to a larger economy with substantial amount of unskilled labor that experienced a housing crash – perhaps Italy, but especially Spain. Spain’s male 25-54 employment rate CRATERED compared to the US. It fell a full 18%!! Of course Spain’s economy was hit harder, but its also heavily construction based, and even though construction returned, you can see that the participation rate is still several percent below 2008 levels.
https://fred.stlouisfed.org/series/LREM25MAESQ156S
Third, we have to consider austerity. But I’m not talking Federal, which is small potatoes, I mean state. Even though federal spending has been growing, states have mostly collectively cut spending, often massively, since 2008. Even as borrowing rates were fractional, states cut services, and much revenue was allocated to pensions. State government labor loss shares a similar fate to construction labor – it requires retraining and cannot be easily transitioned.
Fourth, and this one I can’t quantify as much, but it’s a good sense for why the ePoP gap may not narrow as much going forward in the US. Small business applications have been immense in the US post-COVID. And I’m not entirely certain that every small business owner will always show up in the employment statistics
https://fred.stlouisfed.org/series/BABATOTALSAUS
And finally, and maybe more importantly, lets consider the following fact. From 2015 to 2019, the US ePoP rate increased 4 full points, and massively narrowed the ePoP gap relative to the rest of Europe. The US is a far more divided society with a substantially larger portion of the population that is unable to participate in society’s benefits relative to Europe. So to see that the gap has shrunk as much as it has is, imo, a testament to the US resilience, rather than a symptom of its issues.
>Firms impose higher effort demands on workers; workers have to complete more tasks (for a higher wage) or be fired.
You mean that workers are paid less for the same and thus also less motivated to look for a job right?
>There has been a shortfall of new houses even if you include the mid-2000s housing boom, and there has been a further drop since the bust.
What's the link between this phenomenon and the increase in house prices? That's a genuine question, it's not obvious to me.