Why did Keynes’ famous prediction that rising productivity would lead to a massive reduction in hours spent on the job not come to pass? One part of the story, as Jerry Brito observes, is that instead of toiling for fewer hours a week, people have the ability to shift into work roles that they find less onerous. Relatively few people appear to be engaged in an actual effort to maximize their income relative to their skills. Whether that’s family ties stopping you from making that big move to North Dakota or quitting your job at Accenture to start a barbecue joint or snagging a job that lets you clown around on Twitter rather than going to law school, most of us give some thought to the “amenity value” of our jobs as well as the salary.
As Reihan Salam writes, the fact that people care about job amenity value intersects with aspects of the tax system. Uncle Sam taxes a slice of your salary but doesn’t claim 10 percent of the feeling of satisfaction you get from your work. So the higher the marginal tax rate, the larger your incentive to trade off income for nonincome amenities. The flipside of this, as Ryan Nunn has shown in his research, is that standard estimates are going to overestimate the deadweight loss associated with tax rates.