1. Entertainment and Media: Markets and Economics
Long Run Trends and Short Run Outcomes: Who We Are

2. Why do we work?

3. How much do we work? A Very Long Run Trend: US hours worked is falling or steady

4. International Comparison: Hours Worked (Per Year) Americans generally work more hours than others. Same long run trend

5. Cultural Differences in Hours Worked

6. 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),

7. Spending on recreation is growing in absolute terms
Per capita, real spending on recreation
and recreation services.

8. The long run trend in recreation expenditure as a proportion of real income is growing
Recreation as a % of Disposable Income

9. The form of recreation spending is changing
Service Component of Recreation Expenditures
Service = Movies, Sports, … (passive)

10. The U.S. economy grows by about 2% - 3% per year.

11. E&M Is a Large “Industry”
Total Economy $15,000b
Entertainment and Media %
Health Care % (has peaked)
Recreation of all kinds $ b
Games, sports, clubs, …
Print Media $ b
(Books, magazines, newspapers,…)
Movies in theaters $ b
(All figures approximate)

12. Entertainment and Media: Markets and Economics
Short Run Outcomes
Consumer Theory

13. 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
Time
Money = Income and savings

14. 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

15. 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!

16. 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.

17. Reaction to short term fluctuations

18. 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.

19. 2010 Food $ 6373 Housing $16895 Clothing $ 1725 Transportation $ 7658
Health Care $ 3126
Entertainment $ 2693
Insurance $ 5471
Everything Else $ 5127

21. Consumer Spending by Income Class
Category Avg Top
Income $ 51G $127G
Food % %
Health care 4.2% %
Entertain % %
Clothing % 2.6%
Education % 1.7%
Housing About 31%
Transportation “ %
Other “ %
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.

22. 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:
Entertainment is rising
Health care is rising, but more slowly now than in 2010
Food and clothing is falling
Growing entertainment market is driven by
budget reallocation
changes in preferences.
changing technologies and falling prices
Demand in the recreational segment of the economy is rising faster than overall output.