Kate Sheppard writes about some CEPR research arguing for the environmental sustainability benefits of reducing aggregate hours worked. The logic here is pretty simple. If Americans only worked, on average, as many hours per year as Germans work, then American economic output would be lower, and while producing fewer goods and services, we’d also be producing fewer greenhouse gas emissions and other pollutants.
But I think the best way to read this logic is probably the other way around. A really serious agenda to curb pollution would reduce economic output below its counterfactual level, but a fair amount of that would come in the form of increased leisure rather than actual immiseration.
Imagine a stiff carbon tax where instead of using the revenue to offset existing taxes, it’s simply returned to the public as lump sum checks akin to the “cap and dividend” approach that’s being championed by Theda Skocpol lately. What’s going to happen here is that on the one hand people will reduce their consumption of pollution-intensive goods and services. But on the other hand, folks are going to work less hard since in effect we’ve created a small guaranteed basic income system. People with prestigious, high-status jobs they love will just pocket the cash to offset the higher taxes they’re paying, but people with unattractive job opportunities will take advantage of higher incomes to work less and enjoy more leisure.
Consequently, the GDP impact of cap-and-dividend is going to look much worse than the GDP impact of a program where the revenue is used to finance an offsetting payroll tax cut. But that’s not exactly because cap-and-dividend is wreaking havoc with the core drivers of prosperity. Rather, America would become a bit more like a northern European country. Our output-per-hour-worked would rise, (because low productivity workers would disproportionately shed hours) and on average people would have somewhat fewer material goods (most visible in Europeans’ small houses and cars) and more leisure time.
