ASQ - Team and Workplace Excellence Forum

Online Edition - August 2000

Issue Highlight - Homeward Bound
--- Peter Block offers some practical reccomendations about how to create balance and harmony in your life.
These recommendations are guaranteed to work or your time back."

In This Issue...
The Economics of Choice
Children: A Blessing or a Lucky Taxbreak
Welcome to the Wild West
The Struggle to Have It All

Peter Block Column
Day-in-the-Life Stories
Views for a Change

Heard on the Street
Letters to the Editor

The Economics of Choice
Even the High Priests of Business—Econonmists—Struggle with Placing a Value on Work and Home

--  A business is a business is a business... And most businesses are concerned about the economics of the business—cost to produce, yields, production ratio, etc.

    But how do economists place a value on our home life? What at first might appear to be a simple answer becomes increasingly complex, if you begin to challenge the responses from the view points of philosophy, psychology and empowerment. In this special interview, News for a Change attempts to do just that.

NFC: Is there an economic value of time?

Elliott: Time is a commodity. Time is input into the production process in an economic sense just like anything else is. We are constrained by time. There is only so much time you have to make things and do things. Individuals, in an economic sense, in a purely theoretical sense, trade off between working and being at home. Work gives you the money to do things during your leisure time. Again, time is a commodity. One can only spend so much time making stuff.

Block: We have the phrase, "Time is money."

Elliott: Time is money, in a purely economic sense. Money is simply around so that we can talk about value. Money tends to become a hang-up when you're talking to a lot of people, because they think that, as economists, that's all we care about. In fact, what we're interested in is helping businesses make choices between competing opportunities and creating goods.

Kramer: You view time as a variable in an equation for understanding production. Isn't that an older model? Now, with the whole economy moving to more knowledge workers, it's not as easy to calculate the amount of time it takes to do a specific component of a job.

Elliott: But time is still a finite resource. Despite the idea of the 24/7 society, there are still only 24 hours in a day and seven days in a week.

Block: But it's also a subjective experience. "I don't have enough time..." Well, I have time for everything that really matters. If my car runs out of gas, I have time to get gas. If I'm on my way to a wedding, and I'm late, and I'm nervous, and I get a flat tire, do I have time to change a tire? No. Do I change it? Yes. Also, I think time goes quickly when you're having a great time. But when you're waiting in the dentist's office, time goes slowly. So I think it's both a 24-hour fact, and also a feeling.

Elliott: A shortcoming with economics is that we understand that time can seem to pass faster at one time than at another. But an hour is still an hour. That creates an interesting economic issue that I have never seen addressed. Usually it's set up that, with 24 hours in a day, you can work at your leisure. What you're suggesting, and what I think is true, is that there are some gray areas that are blending. Working at home: Is that really home time or is it work time? And is that time valued differently?

Block: I think the notion of pay for time is disappearing. Now you pay to have a job. Even the production workers at Ford are being given a computer at home. Why is Ford going to give 220,000 employees a free computer? They want those workers to learn to use the computer so they can bring it back to work, but they want them to learn on their own time, not on Ford's time. Even there, Ford is lowering the boundary of, "When am I at work? When am I not at work?" They want the workers to finance their own learning.

Elliott: And from an economic standpoint, that's not a bad idea. For Ford, it's not a bad idea at all. Why would I want to send my employees to computer training, if I think what they're going to do, as soon as they have it, is pack up and leave?

Block: That's not why they're doing it, though. They're doing it to reduce their training costs. I think organizations have now invaded our private space for the sake of economic value to the organization. They give us laptops so we can work at home. I think the growth of telecommuting is driven by the need to reduce the cost of office space. This is not done to make people's lifestyles more comfortable. I think the organization and the mind-set of economics is that the institution's purpose is to make money. It is a major cause of the dissolution of the family. And if you want to understand how family values have disintegrated, and they have, I think it's the workplace that's a driver of that, more than the 60s, or the fact that immoral instincts are totally accessible all the time. And nobody talks about that. Nobody says that we have now given back the rights fought so hard for by the union. And we've given them back voluntarily. We do it willfully.

Kramer: I'm interested in what Steve's research shows on how people rationalize their decisions.

Elliott: In an economic sense, rationality is defined as self-interest, or only undertaking actions and behaviors that make people better off. My research suggests that if you go back and look at the theory that builds this great model we have of perfect competition, we as individuals, on a day-to-day basis, don't act rationally. We assume that people's preferences are transitive. For example, say you prefer apples to bananas, and bananas to grapefruit; therefore you prefer apples to grapefruit. The preferences are transitive. But in the real world, if you go out and look at people's preferences, they aren't transitive all the time.

Kramer: Use another example, like the decision to work more. Or the decision to trade time for money. Most of the research shows that people would be willing to give up a certain number of hours of their workday for more free time, and they'd take some kind of pay cut. They'd rather have the time than the money.

Elliott: People don't understand preferences. We assume preferences are well ordered, and they're not. A prime example is a project I was involved with a number of years ago stating values for non-market goods. This study was looking at the forest service. We were getting at the existence value of trees. How much do people value trees? The project involved two phases. We brought people in, and we said, "On the desk in front of you there's a little tree. We're going to try to sell you that little tree. If you buy it, you'll get to take it home, pet it, water it and give it a name. If you don't buy it, we're going to kill it." We actually picked someone out of the group. He had these big scissors, and we picked someone to watch us hack this tree down. And we asked them what they were willing to pay for the tree. We used what's called an incentive device to try to elicit actual value instead of some sort of manipulative value, and the value came out at about $5-8 to save a tree a foot high. What's the cost of that little tree? If you go to a nursery, it'll cost you about $5.

    Then we turned it around. We brought in people and said, "What's on your desk is yours. It's yours to take home with you. Pet it, water it, give it a name. But we'll buy it back from you. Before you leave, we'll give you chance to give us the tree, and we'll pay you for it." Now, economic theory suggests that those values-the willingness to pay value, how much we paid for the tree -should be very similar to the willingness to accept-how much money can I give you to buy it back? They should be almost the same value. Whether I'm buying or selling the tree, my value of it should be the same. We turned this into a "willingness to accept" question: How much would we have to give you in order to sell us the tree, knowing that if we buy the tree from you, we're going to kill it? Anybody want to guess what the value would be?

Block: I would say $25.

Kramer: Fifteen dollars.

Elliott: Forty-five dollars. And it was constrained upward because that was all the money we endowed them with. We had one man who freaked out and wanted to buy all the trees for $300.

Block: Doesn't economics include a social dimension, too? I bought a rug from a man in Morocco, and I asked, "Did I pay too much for this rug?" And he asked, "Are you happy with the rug?" I said yes and he said, "Then you didn't pay too much." What I wanted to know was: Did someone else get it for less? Then I would have been angry. There's got to be some kind of social dimension.

Elliott: It's really hard, because economists are desperately trying to be physicists and come up with all kinds of nice equations to explain all of reality.

NFC: What I'm hearing is that all these theories break down when you go from the individual to a larger whole. Yet, businesses have been largely influenced by economic theory. So we make business choices based on these economic theories.

Kramer: Would economics agree with that?

Elliott: I would shy away from that statement. I'm uncomfortable saying that my model of perfect competition is informing businesses on how to make their decisions. I see it as more of a predictive. I'm not telling a business how it should run, because I can't imagine any business knowing what their marginal costs are. I don't think they know the costs of producing the last unit of output. I can't imagine that they know how to pay an individual based on their marginal productivity, the last amount of work that they get out of the last individual. That's theoretically what the weight should be. If they do that, I'm really impressed, because I'd like to know how they measure it. What I've got are models that predict outcomes, not the blueprint for making business decisions.

Block: If you have models that can predict outcomes, and one of the outcomes is that people are now working 12 hours when they used to work eight-they've set up an office at home, but they used to go to work to do work-how would you have predicted that? What are the dimensions of our lives that help predict that reasoning?

Elliott: My model's wrong. That would be the most basic way to start-that I have misspecified my model.

Block: You couldn't have predicted this 24/7 culture?

Elliott: Ten years ago there was dichotomy. "I work, or I go home." I can break time up into work time and leisure time. Therefore, I would consider time to be equal to my work time plus my leisure time.

Kramer: This is more "old model" thinking. Work is a positive for many people. In fact, it's sometimes more of a positive than leisure.

Block: There's a great story about a child on the side of the road who had five statues of a god, and a guy said, "How much are they?" The kid answers, "They're a dollar a piece." And they guy says, "I'll take all five. Will you sell them to me?" And the kid says, "No. What will I do for the rest of the afternoon?"

NFC: People are complaining about how to balance time at work and time with family. Do you think this is an issue that organizations should be concerned about? Or do you think it's just going to all balance out? Is this an issue from an economic standpoint?

Elliott: From my position as an economist, this is not a problem. It's something that, as economists, we need to understand because our models are not currently developed to do that, at least not the ones I've seen. So what I really want to do, if I want to understand the choices people are making, is change my models.

Kramer: So economics really can't help us understand the issue?

Block: Economists do have a powerful position, and I think the economics position far dominates this culture more powerfully. Even if you as an economist think you're wrong most of the time, we are left with the remnants of your history. Economists ask, "What's the problem?" When people complain about work/life balance, why don't we ask, "Where's the problem?"

Elliott: I had a graduate school professor explain this to me. Economists are nothing but the high priest of business. We are the keepers of the dogma.

Block: You run the same risk of the priesthood: a dying profession. The church is having a hard time getting priests now. It seems to me that the best jobs pay the most. Rather than saying we compensate for the suffering involved in labor, it seems like the worst jobs are the lowest paying jobs.

Elliott: The economic concept is that you pay for what you produce. You'll take the job if you believe in compensation, or work for your disutility. But as a businessman, I price your wage at how much you produce. What do you give me?

Block: Maybe the problem is that we choose the work because we have no way of measuring the value of the relationship. It has no economic value. It's unmeasureable.

Elliott: That may very well be, and I think if that's what you want to say, then the argument is, "I don't know my preferences very well."

Block: No, I do know my preferences. My preference is to put energy into things that I can measure so that I know I'm making progress. Why is there a compulsion about measurability? Because it's rewarding to see what the score is.

Kramer: People will always say their preference is to spend more time with their family, and then there is no work/family balance problem.

NFC: Free choice. We all made those choices. But are people making that choice freely, or are they doing so because, organizationally, their insecurity is so threatened by it?

Block: If we invited a philosopher to join us, he would say the decision to treat yourself as if you have no choice is a choice.

Elliott: I've thought about that when I hear people say, "I have no choice but to do this." There are very few times in our lives when we don't have a choice.

    August 2000 NFC Homepage


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