Scrooge, Christmas and the wonders of capitalism
When Bob Cratchit asks Ebenezer Scrooge for Christmas
Day off, Scrooge replies that Christmas is “a poor excuse for picking a man’s pocket every
25th of December. But I suppose you must have the whole day.” This exchange is one of several ways that Charles Dickens lets the reader know that, until the ghosts scare some goodness into him, Scrooge is an unusually stingy fellow. Or is he?
Even today some people work on Christmas. In the United States, that about 3% of the labor force; the percentage in England is similar.
But in the 1840s, when “A Christmas Carol” was written, workers in the United States and England worked more hours per day and more days per year than is true today. Working on Christmas Day was common.
We can see that even within the context of Dickens’s story. On Christmas morning when the reformed Scrooge calls to a passing boy to buy the prize turkey on display in the poultry shop, he assumes the shop will be open. When the Ghost of Christmas Present leads Scrooge through the streets of London on Christmas day, many businesses are open.
In 1840, the average employee in the U.S. worked 67 hours per week. In 2023, the average employee works only 34.5 hours per week — a decline of nearly 50%.
What explains the drastic fall in how many hours we work?
Was it mainly the result of union bargaining? Nope. Was it mainly the result of government regulations? Wrong again. Unions and government had some effect, but hours worked have declined steadily through decades when unions were strong and decades when they were weak; through the decades before the 1930s when the federal government began significantly intervening in labor markets, and through the decades since.
The correct answer — one that Scrooge would appreciate — is that the decline in hours worked has been mainly the result of capitalism’s ability to raise the income of the average person.
In 1840, the Industrial Revolution was just getting started in England and the United States. As time went on, the market provided workers with jobs that used more machinery and equipment and — through technological progress — better machinery and equipment. Increasing
amounts of capital per worker and continuing technological progress have greatly increased labor productivity.
The only way the standard of living in a country can increase is if labor productivity increases. Fundamentally, income represents the ability to consume goods and services. The average person can’t consume more goods and services unless the average worker can produce more goods and services.
In 1840, GDP per capita in the United States, corrected for inflation, was $2,200. In 2023, it’s $67,000. That huge increase in income underlies the huge decrease in the number of hours we work. We work much less now because we’re rich enough
to do so.
Firms don’t offer workers just a wage; they offer employment packages that often include health insurance, pension contributions, paid sick days and paid vacations. Firms compete to offer packages appealing enough to attract workers with the skills the firms need.
Why do firms today offer jobs that require fewer hours of work than in Bob Cratchit’s day? There’s an economic explanation. An increase in wages has two effects: First, it raises the cost to the worker of not working. If you earn $20 per hour, you give up $20 for every hour you don’t work. If your wage rises to $30 per hour, the cost of not working goes up. Economists call this the
substitution effect and it leads us to want to work more hours as our wages rise.
But because a wage increase raises your income, you want to consume more, including more leisure. Economists call this the income effect of a wage increase and it leads us to want to work fewer hours as our wages rise. Over the long run, the income effect of rising wages has been larger than the substitution effect. So as our incomes have risen, we’ve chosen to work fewer hours.
In 1940, the federal government began requiring employers to pay overtime for more than 40 hours of work per week. But the 40-hour work week was just ratifying a decades long trend in
falling hours of work.
If workers today worked the hours of a Bob Cratchit, GDP per capita would be much higher and workers could buy many more goods and services. But through the labor market, workers have communicated to employers that they’d rather work fewer hours than consume more goods.
This holiday season we can be thankful for the bounties that capitalism has provided us, among which is the ability to live well while working many fewer hours per week than Bob Cratchit did.