What’s the value of your time?

by on January 7, 2010 at 5:35 am in Economics | Permalink

B., a loyal MR reader, asks me the following (and he also manages to send me a paragraph which for whatever reason won't indent properly):

"I've been struggling with an economics issue lately that I think is universal: How much do I value my free time? I usually estimate it at about $50 or so per hour, but what happens to that as I have less and less of it due to work? And by how much should my salary increase for this corresponding decrease in the amount of time I have to enjoy that time? I've taken a crude stab at answering this on my blog (http://meanderingwoods.blogspot.com/2009/06/how-much-is-free-time-worth.html) but I'm no economist – actually I'm a psychologist by study and a risk consultant by trade. I would imagine that there is some literature on this but I was unable to locate much through Google. I would appreciate it if you could point me toward something or maybe bleg about it."

As usual, the correct answer is "it depends," but here are a few principles:

1. Don't value your time by your implicit wage rate, no matter what your Econ 101 text says.  For most jobs you are assigned some lumpy tasks and you don't control your work hours at the margin as much as you might like to.  The key question is whether the overall pattern of your time is an enjoyable one and marginal calculations aren't always a good way to make that estimation.

2. Ask the simple question: at what valuation of my time will I maximize the amount I look forward to each day, defined over the next five years?  If your next five years are not so tolerable, reexamine what you are doing and that includes revaluing your time.  For instance you might be an irrational workaholic or a lazy bum.

3. Look to the economics literature on "golden rule" and "steady-state" path comparisons to address this problem.  If need be utter the word "Flow" and try to remember how to spell that guy's name so you can google it.  

4. What do you want time for anyway?  When is your time ever "free"?  If you choose to work more for money, isn't that time "free" too?  Only if your job is a total drudge should you frame the choice this way.

5. Focus on defining the experiences you value most, and how to get more of those experiences, and wise money/time choices will flow from that approach.

Readers, do you have better…dare I call it…advice?

TomG January 7, 2010 at 6:14 am

What would you do if earning a living was no longer necessary? If you take money out of the equation, and your choices
change – then it’s proof positive that work-for-pay, as one knows it is sacrifice of one’s preferences to do something (or
anything) else. This other activity is the “free time” opportunity cost – oxymoronic though that sounds ;-) Of course
not of it is static (and even drudgery has its sliding scale), but ceteris parabus, it could be quantified to some extent I imagine – based on an individuals economic value, set of preferences and local market prices.

E. Barandiaran January 7, 2010 at 7:14 am

A good, Econ 101 approach to value time is to use as currency the default use of time–that is, the use one prefers when there is nothing else to do (what you do when you are bored). For some people, sleeping may be the such a use. But for most it’s something else–for example, reading blogs. Whenever you’re asked to do something or you consider to do something else, the relevant question is why to sacrifice your default use of time and how much of it you’d be willing to sacrifice.
Please note that my approach amounts to reject Tyler’s point 5. When you are going to decide what to do next, don’t start with a review of all the things you can do (Tyler’s point), just look at your default use of time (my point).

TomG January 7, 2010 at 7:36 am

I don’t consider rest (which is he mind/body’s need to recuperate/replenish) to be a subset of “Free Time” – whose valuation shouldn’t
include essentials (I would even include time spent on self-investment – training, advanced degrees, wage-enhancing steps – either).
Cheers, TomG

Andromeda January 7, 2010 at 7:43 am

Turns out if I google “flow” result #3 is the relevant Wikipedia and #4 is the book, which is great, because I can never remember how to spell Mihalyi Csikzentmihalyi. (*checks* Yup, missed an s.)

Of course with personalized search results, now that we live in the future, YGMV.

Luis Enrique January 7, 2010 at 8:08 am

I’m very pleased to read point 1.

Michael January 7, 2010 at 8:27 am

E. Barandiaran, I can’t get my mind around a default without a history. It seems to me that if the past is eliminated, the default is what we are doing at the present moment, rather than some alternative to what we are doing. I’ll have to think more about your idea. Thanks.

E. Barandiaran January 7, 2010 at 8:39 am

Michael, you should distinguish between the default use of time and the value of this default use. I assume that the default use doesn’t change often (it changes a few times during the life-cycle of a person), but its value changes “every minute” (you can think that the marginal utility of the defaut use of time is quite high when you wake up and then it declines during the day: the more you allocate time to it, the faster its marginal utility declines; indeed, you can apply the same idea to a longer time period).

Bill January 7, 2010 at 8:51 am

Implicit in the previous question is that we are pricing the value of time to Target of you staying in the store.

Nathaniel Dean January 7, 2010 at 9:34 am

If we take this from a Lockean perspective, we can’t own our free time (at least in any alienable sense), only the labor we produce from that free time. Therefore, our free time is worth nothing until we plan to do something with it. More realistically, I would say that our free time is more like a set of sequentially expiring options on our labor and should be priced as such.

Andrew January 7, 2010 at 9:45 am

I’ve thought about this for years.

Most people can’t choose to work a marginal hour for a marginal wage, so wage doesn’t really work.

Thinking about your alternatives may raise the cost of what you are stuck doing.

I’ve tried to get my wife to rate responsibilities on a 1-10 scale of importance, then I rate them on a 1-10 scale on enjoyment. That hasn’t worked out so well.

dWj January 7, 2010 at 10:53 am

If you’re busier than you want to be, value it more highly. If you’re less busy than you’d like to be, value it less highly.

This is sort of approximately #2, and is more or less how my “budget” works; I have an amount of money I want to be spending, and every year or so (but very sporadically) I look back at how much I’ve spent; if it’s more than I’d intended, I note that I’ve been valuing dollars too cheaply, and if it’s too low, I should start making some of those marginal purchases I’ve been passing up.

Matthew January 7, 2010 at 11:13 am

It seems to me that some of these comments are skirting quite close to a labor theory of value, and I’m guessing that no one here accepts that theory.

I suggest that the question “what is the value of my time?” is meaningless without a set of assumptions on who “I” am and a common paradigm to describe what value is.

I suppose the Austrian paradigm of “action reveals [value]” doesn’t make for a very interesting economics discussion of this question, but there still seem to be some psychological issues worth exploring.

azmyth January 7, 2010 at 11:44 am

Time is the ultimate scarce resource, not money. Maximize your enjoyment of your time. If this means working so you have money to do things you like, so be it. Dollar values of time are meaningless, since there is no way to exchange one for the other. This is one area where the mathification of econ is at its most misleading. If you would rather work at your job and hire someone to do chores, do that. If you would rather do the chores yourself, then do that. It is all dependent on your subjective value of the various paths your life can take.

Dave January 7, 2010 at 12:04 pm

The value of your time is the amount you value your most preferred activity that you could be doing at each given unit of time, minus the price paid to participate in that activity. For instance, if you go to a 2 hour concert that you value at $100 and it cost $20, then your value for that time is ($100-$20)/2 = $40 per hour. If you are sitting at home watching TV for an hour for free (marginal costs are what matter), and you value it at $10 (how much you would be willing to pay to watch TV for that hour), then your value of that hour is $10. In other words, your time is made up of experiences, so you’re really trying to measure your consumer surplus of those experiences per unit of time.

Your alternatives and preferences fluctuate all the time, so pinning down one constant dollar amount is impossible. An example of how your preferences fluctuate: at noon on a normal day, you may have no desire to sleep. You might place a $0 or even negative value on going to bed at that time. But you might be willing to pay quite a bit to sleep after staying up for 36 hour straight.

You could keep a log of how you spend your time (revealed preferences), how much you value that time, how much you had to pay, and how long you did it for. Then calculate an average value of your free time, if you are looking for a rule of thumb.

Andy January 7, 2010 at 2:13 pm

I like the assertion that free time is only understood in an economic sense in the context of a market. I think of my free time this way. As a student but also active duty military, I have a greatly varying amount of free time. Some weeks I have whole days with no obligations. At these times, my free time is worth perhaps 5$ – each individual hour of free time is not particularly necessary. 5$ might be how much I would pay to enjoy that hour during that week – better yet, 5$ is perhaps how much someone could pay me to work for that hour.

However, some weeks I have almost no free time. Then, the price of an hour of free time might be 100$ – that price being how much someone would have to pay me for an hour of work. Free time, which I take to be all time in which you have a choice of what to do (for me, time I’m not at class or fulfilling military obligations) includes sleep, eating, reading blogs, etc. I argue that studying falls under this umbrella as well.

Ned Baker January 7, 2010 at 4:01 pm

I think most of us need a walk in the woods.

Eric Auld January 7, 2010 at 5:13 pm

In comparing the situation to “steady state” and “golden rule”, what are the analogies to the savings rate, consumption, depreciation, and capital?

Ben January 7, 2010 at 6:53 pm

I find the question at the end of the original blog entry quite interesting and it doesn’t seem to have yet been addressed — rephrased slightly, assuming that I have achieved the ideal work/leisure equilibrium at my current salary and that my work time is easily adjusted, what are the necessary conditions for me to want to work more (or fewer) hours when I get a raise?

ToriAdams January 8, 2010 at 2:49 pm

I have been playing around with this number for many years for various congestion studies. I find almost all the approaches are deeply flawed. I have always thought that the way to get to grips with this question is to look into how much people are prepared to pay for the leisure. In some sense, peoples time my be worth less than the wage they are paid or they would take leisure rather than the work. Furthermore, people are often prepared to give up leisure for no increase in present income but on the chance of future income (e.g., I regular worth uncompensated overtime at my job on the grounds that it will please my employers and increase my change of promotion, a higher salary, and a bonus). When I factor in how little I really am likely to get and the probability of getting it, my uncompensated overtime is valued much less than my wage rate. In fact, the longer I work, the less my time is worth (to me?). When I am at home, I regularly make judgments about whether my time is sufficiently valuable for me to achieve some good and frequently make the judgment that it is less valuable that comparatively low value things. I don’t quite know where to go with this but it seems to me that our behavior would lead one to think that the value of a persons time is pretty low.

Andrew January 8, 2010 at 4:51 pm

$365K per year? Wow, you really are economists! (haha, just kidding with you)

Andy Hallman January 10, 2010 at 3:48 pm

@projectshave

“I’m now *paying* $60 (half of $120) to recover a 5hr block of time, or $12/hr, just to sit on my couch!”

You’re paying for 5 extra hours of free time AND a clean apartment, so the deal is better than you describe.

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