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Entertainment and Media: Markets and Economics Long Run Trends and Short Run Outcomes: Who We Are 1:B - 1(22) Macroeconomics Why do we work? 1:B - 2(22) Macroeconomics How much do we work? A Very Long Run Trend: US hours worked is falling or steady 1:B - 3(22) Macroeconomics International Comparison: Hours Worked (Per Year) Americans generally work more hours than others. Same long run trend 1:B - 4(22) Macroeconomics Cultural Differences in Hours Worked 1:B - 5(22) Macroeconomics The trend in hours worked is different between manufacturing and services The service sector is growing and the manufacturing sector is shrinking. This describes more finely the long run trend in hours worked: Change in the hours worked in the service sector and expansion of the service sector in the economy. Recent trend in hours worked (weekly, average), 1965-2009 1:B - 6(22) Macroeconomics Spending on recreation is growing in absolute terms Per capita, real spending on recreation and recreation services. 1:B - 7(22) Macroeconomics The long run trend in recreation expenditure as a proportion of real income is growing Recreation as a % of Disposable Income 1:B - 8(22) Macroeconomics The form of recreation spending is changing Service Component of Recreation Expenditures Service = Movies, Sports, … (passive) 1959-2009 1:B - 9(22) Macroeconomics The U.S. economy grows by about 2% - 3% per year. 1:B - 10(22) Macroeconomics E&M Is a Large “Industry” Total Economy $15,000b Entertainment and Media 6.4% Health Care 19.0% (has peaked) Recreation of all kinds $ 725b Games, sports, clubs, … Print Media $ 110b (Books, magazines, newspapers,…) Movies in theaters $ 12b (All figures approximate) 1:B - 11(22) Macroeconomics Entertainment and Media: Markets and Economics Short Run Outcomes Consumer Theory 1:B - 12(22) Macroeconomics Consumers allocate their resources to maximize their well being A standard model for consumer behavior Utility maximization over choices subject to constraints: Market environment: Prices Resources 1:B - 13(22) Time Money = Income and savings Macroeconomics Time Is the Ultimate Constraint Consumers: Maximize Utility (Consumption, Leisure) Constraints that limit the amounts they can consume Available Money = Savings + Wage*Labor Prices Pcons = Goods Prices Pleisure = Wage Rate = opportunity cost of leisure Available Time = Labor + Consumption + Leisure At least for the short term, the wage (ability to earn) is fixed Tradeoff: To consume more, we must work more, leaving less time for leisure. The fixed amount of time is ultimately the binding constraint 1:B - 14(22) Macroeconomics Falling hours worked is a substitution of leisure for consumption Does falling hours worked mean lower income? Aggregate GDP? No; there are more people and wages are higher (slightly) For Individuals? No; Higher real wages because of productivity increases. Yes: Conscious decision to take higher income in the form of more leisure! 1:B - 15(22) Macroeconomics Implications of the Theory for Changes Over Time As Wage rises, leisure becomes more expensive. As Income rises, leisure becomes more desirable. (Leisure is a normal good.) Net effect over time if real wages and incomes rise? Higher incomes generally lead to greater demand for leisure – leisure is a normal good Higher wages make leisure more expensive – consumers desire greater consumption rather than greater leisure. Hours worked are not falling very much any more. Not clear which way the result will go. Look at our macro data. Per capita income in the U.S. is not rising much at all. Hours worked is falling, but not as fast as it once did. Demand for entertainment seems to be rising reflecting cultural shifts. 1:B - 16(22) Macroeconomics Reaction to short term fluctuations 1:B - 17(22) Macroeconomics Finer detail on the allocation of the consumer’s budget Consumer Budgets Housing Transportation Food Clothing Medical and Physical Upkeep Recreation (and other stuff) Allocation Based On Relative prices including the price of time Income and savings Culturally influenced preferences. 1:B - 18(22) Macroeconomics 2010 Food Housing Clothing Transportation Health Care Entertainment Insurance Everything Else $ 6373 $16895 $ 1725 $ 7658 $ 3126 $ 2693 $ 5471 $ 5127 http://www.creditloan.com/infographics/how-the-average-consumer-spends-their-paycheck/ 1:B - 19(22) Macroeconomics 1:B - 20(22) Macroeconomics Consumer Spending by Income Class Category Avg Top Income $ 51G $127G Food 6.1% 7.1% Health care 4.2% 2.8% Entertain. 4.0% 3.6% Clothing 3.3% 2.6% Education 1.5% 1.7% Housing About 31% Transportation “ 16% Other “ 35% The figures suggest consumers reallocate spending as incomes change. Careful! This shows a difference between consumers, not necessarily the change in behavior of a particular consumer as income rises. It is only suggestive. 1:B - 21(22) Macroeconomics Adding It Up Household income is not rising very much Time spent working is steady or falling slightly Time spent on recreation is no longer rising Budget allocated to: Growing entertainment market is driven by 1:B - 22(22) Entertainment is rising Health care is rising, but more slowly now than in 2010 Food and clothing is falling budget reallocation changes in preferences. changing technologies and falling prices Demand in the recreational segment of the economy is rising faster than overall output. Macroeconomics