 In Germany, the education system is entirely public. The healthcare system is also predominantly public. And also home prices and home rents are fairly low compared to the U.S. I don't know a single family that sends their children to private schools. So almost every family sends their children to public day cares, which are free of charge for the most part, to public elementary and secondary schools. And also the university system is almost completely public and universities don't charge tuition fees. And so because there are no elite high schools and actually not even elite universities really, the pressure for families to compete financially with others or with the rich for good or relatively good education for their children is just much more limited in Germany compared to the U.S. Hi, I'm Till van Triek. I'm a professor of Socioeconomics at the University of Duisburg-Essen in Germany. And currently I'm the Theodor Hoijs visiting professor at the New School for Social Research in New York City. When I first got interested in economics, one of the texts that fascinated me most was a short but very famous essay written by the British economist John Maynard Keynes in 1930 on economic possibilities for grandchildren. And in 1930 Keynes predicted that 100 years later, so by 2030, a typical full-time worker in a rich country would work as little as 15 hours a week or just three days a week. And Keynes' idea was that because the capitalist system is very good at generating technological innovations, productivity growth, that at some point we would be in a position as a society to satisfy everyone's material needs if everyone just works a few hours a week. And Keynes actually predicted a coming age of leisure and abundance. And so I think an interesting question for social scientists to ask nowadays is why are we all still working such long hours? And despite the fact that actually the level of productivity is extremely high in the rich world today, exactly as Keynes predicted, and whether we would not be better off as a society, both socially but also possibly environmentally, if we all worked a lot less. Why does the pattern of income distribution look so very different across rich countries, despite the fact that all the rich countries essentially face the same challenges as technological change, trade globalization, financial globalization, and what are the implications of these different patterns of income distribution in different countries for national growth models, for macroeconomic stability or instability, and also for ecological sustainability? So for example, why is it that households in the United States work longer hours, safe less, and have higher debt than households in Germany? Why do the United States and other Anglo-Saxon liberal market economies have persistent current account deficits and much higher levels of private debt, whereas Germany and other coordinated market economies have these persistent current account surpluses and are excessively dependent on exports for generating aggregate demand and employment? The defining feature of inequality in the U.S., as I see it, is the explosion since the early 1980s of the share of total household income going to the very top of the income distribution, the famous Top 1%. Now if the Top 1% get richer and consume more, this will shift the consumption norms for all of society. And in the literature, this phenomenon is known as trick-or-down consumption or expenditure cascades. We know from psychology that status comparisons are local and upward-looking. So if the Top 1% get richer and spend more on positional consumption goods, which signal high social status, such goods as education for the children, housing, traveling, but possibly also healthcare, then this puts pressure on those households just below the top of the income distribution to also increase their spending on these positional goods in order to defend their social status, so to speak. Just take education as an example. Most parents, of course, want a good education for their children in some absolute sense, but what really matters for the future career prospects of your children is the relative quality of education compared with others or rather, in fact, the relative reputation of the schools that your children graduate from. And so if the Top 1% spend increasing amounts of money on tuition fees to get their children a spot on the best schools, then this puts immediate pressure on upper-middle-class families, parents, to also spend more money on education if they still want their children to go to the best schools that money can buy. But the only way for them to do this, actually, if their income doesn't grow as fast as the income of the Top 1% is to sacrifice their enjoyment of non-positional goods. So non-positional goods are things or activities that people do value because they enhance their well-being but they do not signal a high social status. So the most important non-positional goods would be leisure time, saving and financial security or a low level of personal debt. And so because the share of income going to the Top 1% increased so much in the United States since the early 1980s, especially those income groups just below them, the upper-middle class began to work longer hours, save less and go increasingly into debt since the early 1980s. If a higher Top 1% income share leads to lower saving and higher debt among non-rich households, then the long-term consequence of this, of course, will be higher wealth inequality. And this, of course, at some point may pose a threat to democracy. But it may also increase financial fragility in the economy and increase the risk of a house or debt crisis, as we saw in the Great Recession of 2007 through 2009. But ever-rising consumption norms that may be driven by top-end income inequality also have negative ecological consequences because if consumption norms keep rising and households, especially in the upper-middle class, work very long hours, then obviously we produce more, we consume more than would be the case if top-end income inequality was lower, consumption norms were lower and everybody worked less. Households in Germany definitely enjoy more non-positional goods. They work shorter hours, they save more, and also they have lower debt. So in other words, trickle-down consumption or expenditure cascades have been much weaker in Germany compared to the United States. And this is so despite the fact that, in fact, in Germany and other coordinated market economies, the degree of income inequality has actually increased to a similar extent as in the United States, at least when we look at very broad summary indicators of income inequality, such as the gene-efficient of disposable household income. I think there are two main reasons why rising inequality in Germany has not contributed to such strongly rising consumption norms in Germany compared to the U.S. The first reason is that the pattern of income distribution is just very different in Germany as compared to the U.S. It is true that the gene-efficient of household income has increased, but this is due mostly to an increase in income inequality in the bottom half of the income distribution. So the low wage sector has grown substantially, especially since the early 2000s, and poverty has become more of an issue. But the share of total household income going to the very top of the distribution, the top 1% income share, has not increased nearly as much in Germany as it has in the United States. And there are different reasons for that. One is that top executive compensation is much lower in Germany. Also, German companies don't engage as much in very high dividend payments or share buybacks. And one reason for that is that we have worker co-determination in Germany and also many important firms in Germany are actually family firms. They are not listed on the stock market and so they are not subject to U.S. style shareholder value orientation and they are also not subject to winner-take-all labor markets for top executives. And so because the top 1% income share has not increased as much, the rich have not increased their consumption on positional goods as much as in Germany, and hence the pressure that was put on the middle class, the upper middle class to keep up with the rich was just much more limited. The second reason why consumption norms in the middle class in Germany are much more immune to changes in income distribution is related to welfare state institutions. So in Germany the education system is entirely public. The healthcare system is also predominantly public. And also home prices and home rents are fairly low compared to the U.S. for a number of institutional reasons. And these are just some reasons why the scope for positional arms races is just much more limited in Germany compared to the U.S. In Germany, I don't know a single family that sends their children to private school. So almost every family sends their children to public day cares, which are free of charge for the most part, to public elementary and secondary schools. And also the university system is almost completely public and universities don't charge tuition fees. And so because there are no elite high schools and actually not even elite universities really, the pressure for families to compete financially with others or with the rich for good or relatively good education for their children is just much more limited in Germany compared to the U.S. Well, this is of course just anecdotal evidence, but it is actually consistent with what we find in our own empirical research where we actually find that the extent to which the education system relies on private financing is positively correlated with average work hours in a panel of 18 rich countries for the period since the early 1980s. My co-authors and I try to understand two main puzzles. The first is why haven't average work hours in the rich countries decreased much more sharply since the early 1980s. In fact, in some rich countries, especially those with an increasing income inequality, average hours per worker or average hours per person have actually increased, especially in the 1980s and 1990s. And this goes completely against a long-term trend towards shorter working hours as wages increase, as labor productivity increases. It also goes against a cross-sectional pattern where rich high productivity economies typically have lower working hours than poorer economies with lower labor productivity. The second puzzle that we try to understand is why do average working hours vary so much across rich countries? So for example, the average German worker has worked between 200 and 300 hours per year less than the average American worker in the past decades. And this is a huge difference. And in our research we find evidence that these differences are due to differences in income inequality and also due to differences in the wage bargaining system and differences in welfare institutions. Historically, the poor always worked more than the rich. This was true throughout the 19th century and it was even true until the 1970s when workers with a relatively low hourly real wage had a much larger chance of working very long hours than workers with a high hourly real wage. And the famous sociologist and economist Thorstein Weblen, who wrote in the 19th century, actually referred to the rich as the leisure class. Now this situation has completely turned around since the early 1980s. And nowadays, especially in countries with a high top household income share, it is actually those workers who have a relatively high real wage that work the longest hours. So my interpretation of this is that the explosion of top household incomes has put the strongest pressure on the upper middle class, those income groups that are located just below the top 1% in the income distribution ladder. Because it is these upper middle class workers that can still realistically hope to compete with the top 1% in terms of social status. And so for these workers, putting in long hours is a way to keep up with the positional consumption spending by the top 1%. And of course it is also for them a way to signal a high strong commitment and strong career ambitions to their employers. Well, I basically agree with Keynes that many people would find it very attractive to live in a world where we all worked much shorter hours than we are currently used to. And in fact, we know empirically that many workers would like to work less, but only if that didn't mean that their social status would be affected. And so in my view, the main obstacles to reducing working hours, especially in countries like the United States and other Anglo-Saxon liberal market economies, are one, the very high degree of top-end income inequality. Two, the lack of centralized wage bargaining institutions, which would be a way to internalize, at least to some extent, the positional externalities implied by positional consumption spending. And three, the lack of public provision of basic social services. And so I guess the main policy implications of my work, at least for a country like the United States, would be that more centralized wage bargaining institutions, a lower degree of top-end income inequality, and a universal provision of public education and public health care would be ways to make shorter working hours a realistic and very attractive option for many workers. So in countries like Germany, I think it would actually be much easier to pursue policies of working-time reduction, because top-end income inequality is relatively low, wage bargaining institutions are relatively centralized, and also we have a universal welfare state. In fact, reducing working hours would also be a way of addressing Germany's structural current account surplus, which has caused many problems for financial stability, macroeconomic stability in Europe and globally, because the structural current account surplus of Germany essentially means that Germans spend less than they produce. And shorter working hours would be just one way of bringing production and consumption in current account surplus countries more into balance.