When the Time Price of Leisure Rises: The Linder Theorem

In the United States, we naturally celebrate the Labor Day holiday with a holiday from work.

While this may be counterintuitive for others, economists have long seen the price of labor and leisure as intimately intertwined. Although prices are often stated in terms of money, which is a useful convenience, the true price of anything is determined by its “opportunity cost,” which is what you give up or trade off. A standard example is that attending college has two costs: what you pay for tuition, room, and board, and also the opportunity cost of what you could have earned if you had been working at a job during that time. In a similar spirit, leisure has an opportunity cost–it’s the income you could have earned if you had been working. This insight isn’t new, of course: any gig worker in the modern economy knows it at a visceral level.

But the idea that leisure has an opportunity cost has some perhaps surprising implications. It means, for example, that as an economy becomes better off over a long period of time and the standard of living rises, leisure becomes more expensive in the opportunity cost sense. Moreover, as any good or service becomes more expensive, it will tend to be used differently. Alex Tabarrok explains some of the implications in a 2022 essay (“William Baumol and the Cost Disease,” in Research in the History of Economic Thought and Methodology: Including a Symposium on the Work of William J. Baumol: Heterodox Inspirations and Neoclassical Models ungated version here). Tabarrok writes:

Travelers to developing countries notice that haircuts and restaurant meals are cheap and often something else. Life in developing countries seems slower, more tranquil, and less harried. Meals are longer, conversations deeper, time seems to move less quickly. Development seems to be accompanied by fast food, fast talking and even fast walking (Levine & Norenzayan, 1999). In The Harried Leisure Class, Staffan Linder (1970) proved a theorem … As productivity increases, as measured by wages, so does the opportunity cost of leisure or more generally, time. A higher price of time encourages us to economize on time, so as wages rise, we schedule our time more carefully with time planners, “to do” lists, calendaring and incessant notifications. We consume more quickly and we consume more goods that are quick to consume so “fast food” becomes the norm and we choose to watch television or movies “on demand” rather than read books or go to plays or live music performances. We consume multiple goods at the same time as when we eat and watch, talk and drive, and exercise and listen. …

Linder notes that goods and services take time to consume, and time is limited so the price of good x should include not just its money price but also its time price, the wage rate multiplied by the time it takes to consume the good … Or, as Baumol (1973, p. 630) put it, “rising productivity decreases the demand for commodities whose consumption is expensive in time.” …

[T]here are qualifications and additional considerations. Most notably, since the … Linder theorem [is] driven by an increase in productivity, consumers are not made worse off by the respective increase in prices. The choice to consume fewer time-intensive goods as wages increase is welfare-maximizing. It is also true that time is not entirely fixed. Time-saving devices such as faster internet or supersonic aircraft are possible. We can also increase life expectancy giving us more time to enjoy our greater productivity of goods and services (Hall & Jones, 2007). Indeed, we are consuming more leisure over time. Nevertheless, the power of the Linder theorem should be evident. One reason we consume more leisure than in the past is that we manage our time at higher levels of intensity than in the past. A search at Amazon for “time management,” for example, leads to over 10,000 hits. It is also the case that leisure, especially passive leisure such as watching television, has become more concentrated in people with lower incomes (Aguiar & Hurst, 2009).

An obvious question here is the extent to which you wish to push back against more intensive management of your leisure time. Are you planning a day that involves travelling multiple places, preparing and eating multiple foods, while paying attention to multiple music channels and social media feeds? Do you have a desire, or perhaps the internal fortitude, to commit a substantial block of time to a single activity: perhaps sitting down for an uninterrupted conversation, or a swim or a hike, or a couple of hours with a single book. There’s no best answer here, of course. Preferences will differ. But if when you reach the end of your holiday you are exhausted in such a way that you feel as if you need another day off, maybe it’s time to take a closer look at how you are being influenced by the rising time costs of leisure.