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IZA – Institute of Labor Economics

How to create livable and productive working habitats

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These days, the role of paid work is being questioned—not only from the perspective of economic and technological change but also from the viewpoint of individuals. There is a lot at stake for work in general and for all those who must cope with their jobs to make a living. This holds true for both the structure and quality of work, as well as its boundaries with non-work life.

The enduring importance of paid employment

The empirical account presented in my recent book, The Future of Work Environments: Creating Livable and Productive Working Habitats (Edward Elgar, 2025), makes it clear that, for the foreseeable future, paid work will remain essential for nearly everyone. Gainful employment under capitalism is here to stay. While we need not fear the end of work itself, we must pay close attention to the kind of work we do—and the conditions under which it is performed.

Human labor continues to grow where it is least similar to what machines can do—where it complements, uses, or opposes automation. This is even more pronounced in the era of rapidly advancing technologies, including artificial intelligence. The domain of human work now lies along a narrow frontier between automation and uniquely human capabilities. To expand this domain, human work must be increasingly distinct from what intelligent machines can replicate. People shape their work and, when conditions are right, become less and less replaceable.

Imagining different futures of capitalism

Although paid work continues under capitalism, it’s important to recognize there is not just one form of capitalism. We face various possible scenarios in this critical phase: optimistic, pessimistic, and ambiguous. One is a model of radical, unrestrained capitalism, marked by a rigid hierarchy and a complex periphery—combining old bureaucratic structures with a new, tightly managed regime focused on human capital. The other path imagines a more egalitarian, humane capitalism. This would involve a well-functioning labor market, better organizations, and empowered individuals flourishing in supportive environments.

Of course, reality may unfold somewhere in between—ambivalently, with gains for some and setbacks for others. Still, imagining these pathways helps us define what kind of future we want to strive for.

The triple embedding

To create good working habitats, I propose a triple embedding—bringing public policies, firm-level organization, and individual capabilities into coherence so they can reinforce one another. A more horizontal, egalitarian sphere of work—and a more humane capitalism—could form the foundation for livable and productive environments for all.

Reducing inequalities would mean weaker incentives for destructive competition. People could survive, and even thrive, at reasonable standards without an extreme concentration of advantage. Good institutions are key. Built and maintained through adaptation, they enable conditions where people can work and live well—with as much freedom as possible. They are essential for creating working habitats that are both productive and humane.

The role of public policy in shaping work

Public policies can help chart pathways toward more habitable forms of work—especially work that is non-routine and uniquely human. These policies define outer boundaries, shape power dynamics, and support access to employment. They help ensure income security, foster human capital, and enhance individual bargaining power. This benefits not just select groups, but society as a whole.

While policy cannot control every detail of how work evolves, it can provide essential infrastructure—dykes and dams that shape the flow without blocking it. Good policy is, in itself, a productive factor—supporting wages, social benefits, education, lifelong learning, and mechanisms for participation. All of this helps reduce hierarchy and foster more egalitarian labor relations.

Firms as collaborative workspaces

In the best-case scenario, companies become places of collaborative, joint productive work. This means fewer management layers, less rigid control, and more cooperation among equals. While such settings demand strong self-management and individual initiative, they also allow for diversity, creativity, and meaningful participation.

However, this model only works if the necessary skills and capital are widely distributed—not confined to a privileged few. The effort is still real, but work feels less superfluous or absurd. Instead of being extended unnecessarily, it becomes more purposeful.

Human capitalism and the boundary of work

In the era of “human capitalism,” everyone becomes a kind of human capitalist—whether they like the term or not. This system depends on expertise, self-organization, and the ability to cooperate and adapt. It also requires awareness of the boundary between work and its “hinterland”—the essential non-work sphere that sustains us.

Maintaining some distance from the constant demands of work helps preserve mental well-being. People have a remarkable capacity to not just endure difficult conditions, but to shape them, to craft their jobs, and to manage boundaries—especially when supported by a conducive overall environment.

A future worth building

I argue that we can look to the future with relative confidence—especially if the settings we create help individuals shape their own working habitats. When positive complementarities between policy, firms, and individuals reinforce one another, truly livable and productive work environments can emerge.

Still, the future will never unfold exactly as we imagine it—and that’s a good thing. Complete predictability would be stifling. Today’s uncertainty is a sign of the future’s openness. The more is at risk, the more is uncertain—and the more important the idea of a working habitat becomes.

An attractive working habitat—good for both work and non-work—can offer a sense of rescue and refuge. As good as it can get.

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Would you read a story written by a machine?

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By Martin Abel and Reed Johnson

While much recent research has focused on how people say they prefer creative works made by humans over AI, we don’t yet know whether these stated preferences translate into consumer behavior. And, as the saying goes, talk is cheap. But for the millions of people worldwide employed in creative industries, the concern of whether people will be willing to pay more for human-made art is more than an idle academic question. Amidst the coming avalanche of AI-generated work, it is a question of real livelihoods—and more broadly, a question of what will remain ours in this most human of endeavors.

An experiment with AI-generated creative writing

To investigate these questions, we turned to AI-generated creative writing. We asked OpenAI’s GPT-4  to generate a short story in the style of the critically acclaimed author Jason Brown. We then recruited a nationally representative sample of over 650 people and asked participants to read and assess this story. Crucially, only half the participants were told that the story was written by AI, while the other half were misled into believing it was the work of Jason Brown. This design allows us to isolate the effect of (perceived) authorship and to test if consumers value human over AI writing.

After reading the first half of the AI-generated story, participants were asked to rate the quality of the work along various dimensions, such as whether they found it predictable, emotionally engaging, atmospheric, etc. We also measured participants’ willingness to pay in order to read to the end of the story. To capture a fuller picture of participants’ investment in the story, we included both monetary measures (giving up a portion of their pay for participating) and time measures (their willingness to work doing a routine transcription task).

Subjective assessments vs. actual behavior

So, were there differences between the readers who knew the work was AI-generated versus those who didn’t? The short answer: yes. But a closer analysis reveals some startling results.

To begin with, the group that knew the story was AI-generated had a much more negative assessment of the work, rating it more harshly on dimensions like predictability, authenticity, and atmosphere. These results are largely in keeping with a nascent but growing body of research that shows bias against AI in areas like visual art, music, or poetry. It seems that, at least at present, consumers reflexively ascribe lower judgments of quality to AI-labeled work.

However, notwithstanding these perceptions of lower quality, participants were ready to invest the same amount of money and working time to finish reading the story, whether or not it was labeled as AI. Participants also did not spend less time actually reading the AI-labeled story. When asked afterwards, almost 40% of participants said they would have paid less if the same story had been written by AI versus a human, highlighting that many are not aware of the discrepancies between their subjective assessments and actual choices.

Implications for the future of the creative industry

These findings provide timely evidence that widely documented professed AI biases may not be reliable indicators of willingness to pay for human creative labor. The potential implications for the future of human-created work are profound, especially in market conditions where AI-generated work can be orders of magnitude cheaper to produce. With the technology still in its infancy, AI-made books are already flooding the market, recently prompting the Authors Guild to instate its own labeling guidelines. However, our research raises questions about whether these labels are effective in stemming the tide.

True, attitudes toward AI are still forming, and we may well see a backlash against AI-generated creative works. After all, similar shifts occurred in the wake of mass industrialization, such as the Arts and Crafts Movement. This response may take the form of market segmentation, where some consumers will be willing to pay more based on the process of creation, while others may be interested only in the product.

Regardless of how these scenarios play out, our findings indicate that the road ahead for human creative labor might be more uphill than previous research suggests. At the very least, we see that, while consumers may hold beliefs about the intrinsic value of human labor, many seem unwilling to put their money where their beliefs are.

Flash IZA/Fable SWIPE Consumption Index above six percent in November 2024

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By Nikos Askitas and Ingo Isphording

The IZA/Fable SWIPE Consumption Index, a monthly measure of private consumption trends in Germany based on credit card transactions, shows a flash value of 6.34% year-on-year growth for November 2024, continuing a string of positive readings. This preliminary estimate offers an early insight into actual consumption behavior and is informed daily by fresh incoming data. It can be tracked via our embeddable, interactive graph shown below.

Clear insights needed 

Understanding household economic behavior—particularly spending and consumption patterns—is crucial for both policymakers and business leaders. Private consumption accounts for over 50% of German GDP, making it a key indicator for tracking economic resilience, overheating, or potential recessions. It also serves as a foundation for designing forward-looking economic and fiscal policies.

Traditionally, consumption trends have been assessed through survey-based sentiment indicators, such as the HDE-Konsumbarometer or the GfK-Konsumklimaindex, which measure consumer confidence. However, these sentiment indicators often fail to align with actual spending behaviors, as they capture perceptions and subjective expectations rather than concrete actions.

Moreover, methodological challenges—such as the sensitivity of survey-based economic sentiment to survey modalities—can further distort results. A recent example is the artificial pessimism introduced in the University of Michigan Survey of Consumer Sentiment by switching from telephone to online interviews.

Innovative approach

The IZA/Fable SWIPE Consumption Index provides objective metrics based on real spending data from credit card transactions. Complementing sentiment-based indicators, this index offers timely, reliable insights into consumption behavior. It correlates closely with Eurostat’s private expenditure data, making it a valuable tool for measuring consumption trends.

Despite Germany’s credit card penetration rate of 56.5%—ranking only 18th out of 121 countries—the index effectively captures aggregate spending patterns across a wide range of expenditure categories. This robustness is highlighted in a recent IZA discussion paper by Winfried Koeniger and his University of St.Gallen colleagues, Peter Kress and Jonas Lehmann.

Divergence between subjective and objective measures 

Subjective sentiment measures and objective spending data may not always follow similar time trends. Several factors can explain this discrepancy. For instance, financial constraints or the inelastic demand for essential goods may lead households to maintain steady spending levels, even when they express pessimistic sentiment.

Additionally, more subtle behavioral phenomena can contribute to this divergence. One example is the “lipstick effect,” where consumers opt for small, affordable luxuries during economic downturns. Another is the negativity bias produced by the dynamics of news supply and demand, which can skew reported sentiment away from actual spending behavior.

Figure 1 below illustrates the correlation dynamics of the IZA/Fable SWIPE consumption index and economic sentiment sourced from Eurostat, both adjusted for inflation. The figure highlights episodes of both decoupling and alignment between the two measures. During 2018–2019, economic sentiment steadily declined, reflecting growing pessimism, while actual spending, as captured by the SWIPE index, remained largely stable. This suggests that consumption patterns exhibited resilience despite deteriorating sentiment.

A similar divergence reemerged from early 2023 onward: while sentiment declines and stabilizes at a lower level in 2024, year-on-year consumption rates become increasingly positive in the same year. These contrasting trends, along with the broader disconnect between economic fundamentals and sentiment, may point to structural shifts in consumer behavior, the influence of financial constraints, or behavioral adaptations that sentiment indicators fail to capture.

In contrast, the period from 2020 to 2022—dominated by the pandemic, recovery efforts, and the onset of the Ukraine crisis—shows a more parallel movement of the two measures. This alignment likely reflects the heightened responsiveness of both sentiment and consumption to shared external shocks, such as fiscal interventions and global uncertainties.

Another related IZA discussion paper by Winfried Koeniger and Peter Kress provides a deeper analysis of the Fable data, illustrating how consumers responded to Germany’s temporary value-added tax (VAT) cut in 2020, implemented as a policy response to the pandemic.

Figure 1: Comparison of (both inflation adjusted) Sentiment vs. IZA / Fable SWIPE Consumption Index. While sentiment dropped in 2018-2019, consumption remained largely steady; in 2024, consumption grew year-on-year in almost all months despite a pessimistic outlook. (Source: Eurostat’s dataset EI_BSCO_M, variable M.BS-GES-NY.SA.BAL.DE).

Combining measures improves analysis

The patterns of divergence and convergence highlighted above underscore the importance of integrating subjective and objective measures to fully understand the interplay between consumer sentiment, actual behavior, and their impact on the business cycle. Tools like the SWIPE Index complement sentiment data, offering a more comprehensive framework for economic analysis.

Relying exclusively on sentiment-based forecasts risks underestimating the resilience of consumption. For example, Germany’s recently published third-quarter GDP growth, primarily driven by private and government consumption and described as “surprising” by the German media, closely aligned with SWIPE Index trends, which consistently indicated year-on-year growth in private spending for nearly every month of 2024. These insights from the SWIPE Index may even challenge the validity of the recently released official economic forecast for 2024.

“Higher wages or better working conditions can resolve labor shortages”

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In an interview with SPIEGEL Online, IZA’s new CEO Simon Jäger comments about the labor shortages that many German industries are complaining about, and suggests a simple solution. Below is an English translation of the German interview.

SPIEGEL: Mr. Jäger, companies are unable to fill around two million vacancies. Teachers, daycare staff, nurses and IT specialists are desperately needed. And you claim there is no labor shortage?

Simon Jäger: Yes, these labor shortages are essentially a myth.

Firms have been complaining about a shortage of skilled workers for the past 40 years.

SPIEGEL: What makes you think that?

Jäger: In the debate, we have to distinguish between two situations: now and in the future. Currently, there are more people in work in Germany than ever before – 45.9 million people who are better educated than all previous cohorts. Firms have been complaining about the shortage of skilled workers for the past 40 years. However, there is a simple market-based solution: higher wages. If a company offers higher wages or better working conditions, it becomes more attractive.

SPIEGEL: And if employers can’t afford that?

Jäger: Of course, in the case of hairdressers, for example, it depends on what price customers are willing to pay. But that doesn’t change the fact that there is no shortage of workers overall, they are just elsewhere. In this respect, the crucial question is: Who works where? We know from various studies that people move to jobs – or stay in jobs – that offer good wages and working conditions. So there is a simple market-based solution.

If firms want to find or retain workers, they will need to pay more or create better working conditions.

SPIEGEL: So the market takes care of everything?

Jäger: If firms are looking for workers or want to retain them, they will need to pay more or create better working conditions. But what we saw last year were massive real wage losses for employees, while at the same time employment was at a record high. That doesn’t fit with claims of labor shortages. In economic terms, we have an unusual situation: workers are in high demand, but real wages have fallen. Incidentally, this perceived shortage of skilled workers and the price signals sent by the market may also be socially desirable.

SPIEGEL: What do you mean?

Jäger: Over the last 30 years, we see that real incomes in the low-wage sector have stagnated on average, even though overall productivity has risen sharply. For a long time, lower incomes have hardly benefited from economic growth. But the low-wage sector is precisely where the pressure is now felt most.

SPIEGEL: Demographic change will reduce the number of workers available to the labor market in the future. Won’t skilled workers then be in short supply?

Jäger: We are an aging society. In the long term, the labor force potential will decline sharply. However, it is possible to take effective countermeasures.

SPIEGEL: The German government’s skilled labor strategy calls for higher female labor force participation, a modern immigration policy and targeted training measures. Are these the right steps?

An efficient allocation of the labor force is essential.

Jäger: Society must decide what answers to give. That’s a political decision. If we want to prevent the labor market in Germany from shrinking, a variety of measures could be effective. Highly mobile, international skilled workers can choose to go to the U.S., Sweden or Switzerland. For Germany to stand a chance in the fight for talent, we will need higher wages, better working conditions and long-term prospects for immigrants. And the system of joint income taxation of married couples still stands in the way of higher female labor force participation.

SPIEGEL: Measured against the demand for labor, there will still be a shortage in the future.

Jäger: If workers are in short supply, we must ensure that they are deployed where they create the greatest added value. An efficient allocation of the labor force is essential.

SPIEGEL: Can you give an example?

Jäger: Teachers are a good example. Working conditions in schools are not enticing, and teachers are frustrated. Qualified workers often don’t switch from the private sector to the teaching profession even if they would like to work at a school. Part of the problem is that we under-resource our schools.

The perceived shortage of skilled workers is just a symptom of the underlying problem.

SPIEGEL: Higher wages in daycare centers, nursing homes or in the public sector lead to higher daycare fees, health insurance contributions or tax payments.

Jäger: This discussion lacks openness. In fact, the labor shortage debate is essentially a societal debate about the areas in which we want to deploy our resources. Everything comes at a cost. That’s what it comes down to. The perceived shortage of skilled workers is just a symptom of the underlying problem: the distribution of scarce resources.

SPIEGEL: In 2022, 19 percent of employees worked in the low-wage sector, earning less than 12.50 euros per hour. Is there a way out for these people?

Jäger: In our research, we show that, especially in the low-wage sector, many employees in Germany underestimate how much money they could earn elsewhere. So they are actually paid less than they think. When they are informed about what comparable employees earn, they increasingly look for another job or renegotiate. So the low-wage trap at the bottom end of the wage distribution also has something to do with the transparency of wages.

SPIEGEL: In Austria, employers must indicate a wage floor in job ads. Does this transparency help employees earn higher wages?

Jäger: Studies from several countries suggest that such wage transparency leads to more competition, and companies tend to raise wages as a result.

SPIEGEL: Generation Z, born from the late 1990s onward, has a different perspective on gainful employment than previous generations: part-time is in demand, overtime less so. Time is precious, the future is uncertain, and the standard of living of one’s parents seems unattainable anyway. What can we do if people simply don’t want to work as much in the future?

Jäger: It helps to give people more flexibility in their working lives. A doctoral student of mine studied the impact of flexible working hours in Australia: Young mothers are more likely to work, and they work more. Also, the “motherhood penalty” has shrunk. That means the income gap between men and women after the birth of their first child has narrowed. The reform is a good example of how total hours worked could increase if people are given more working-time flexibility.

SPIEGEL: Until now, employment contracts have been rather rigid in Germany – it’s common to work either 20 or 40 hours.

Jäger: Many companies in Germany already have flexible working-time models, often in successful cooperation with the works council. In the future, it would be good to have additional options especially for older workers. Employees and employers could flexibly agree on the scope of work between zero and 100 percent. Some people would choose 80 percent, others 60 percent. Older workers could then, for example, care for their grandchildren more often and continue to work. Overall, more flexibility could lead to more hours worked in total.

SPIEGEL: Would that also be an alternative to raising the retirement age?

Jäger: Making working hours more flexible could at least calm down the debate about the retirement age a little. Employees could work longer – but with fewer hours per week. Many people feel the desire to meet colleagues at work, to engage in fulfilling activities or to pass on their knowledge to young colleagues. Those who decide independently and flexibly to work less will still remain in the labor market. To stabilize the pension system in the long run, however, the option of raising the retirement age must remain on the table.

Babel’s Curse or Babel’s Blessing?

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By Juliana Bernhofer and Mirco Tonin

Polyglot curricula and applicants with international experience have long been considered the gold standard for managerial and executive positions in the private and in the public sector, and rightly so. However, acquiring these skills also entails significant costs in terms of higher effort and lower exam grades. Considering our findings, governing bodies of education institutions should develop targeted policies to avoid inequalities during higher education.

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Over the last decades an ever-growing number of students take degrees in a language other than their mother tongue. According to Open Doors, the number of international students in the United States increased from 1.7% in 1970 to 5.5% in 2019. Even though the pandemic has decelerated the trend, internationalization of higher education is increasing.

Students move for diverse reasons: to get into better, international universities, to enhance personal growth and cross-cultural awareness or to achieve a better placement in the labor market. Also international migration and the increasing popularity in many countries of degrees with English as medium of instruction, for the purpose of attracting talented foreign students and academics, add to the picture. But is it really all plain sailing? Does it only pay off to study in a language which is not the native one or does the additional cognitive effort of having to learn in a second language have a noteworthy impact on academic success? To answer these questions, we analyze the academic performance of students at the Free University of Bozen-Bolzano in South Tyrol, a multilingual province in Northern Italy where the majority of the population has either German or Italian as mother tongue.

A trilingual university as the ideal institutional setting

In our paper “The Effect of the Language of Instruction on Academic Performance”, published in the scientific journal Labour Economics (in Open Access), we study the impact of learning in a second language by looking into administrative data from the Free University of Bozen-Bolzano. Most of the students are Italian or German native speakers who follow a mandatory trilingual study program (German, Italian and English). This represents the ideal institutional setting for a study of this kind, in which students of different linguistic backgrounds are required to take exams both in their first language and the other two languages. As an example, an economics student may take Introduction to Management in German, Microeconomics in Italian, and Econometrics in English. Each course is offered in only one of the three languages, with the aim of providing a balanced language share for each student.

Conversely, analyzing data from monolingual universities – comparing local and incoming students from other countries – would be likely to suffer from a selection bias since better students might on average have a higher tendency to undertake studies abroad. This cognitive advantage may then lead to higher average grades, potentially concealing negative foreign language effects, thus providing uninformative results.

Lower grades, higher failure rates and second-language dodging

We divide our sample of almost 3,000 students into cohorts who attend the same degree in the same year, thus facing the same curriculum. By looking at exam results of German and Italian native speakers who take exams in German, Italian and English, we find that grades of tests in a second language are on average 9.5% lower than grades achieved in the native language. Also, the likelihood of failing an exam is higher for exams taken in a foreign language.

Language proficiency, even at a very high level (C1 or C2 on the Common European Framework of Reference for Language Skills or Levels 3 or 4 on the Interagency Language Roundtable scale) partly closes this gap, but does not eliminate it entirely. The reason for this residual disadvantage is likely due to what psycholinguists and neuroscientists call language-switching costs. Some behavioral studies as well as functional magnetic resonance imaging of the brain show that students who mentally retrieve information they previously acquired in a different language than the learning language face an additional cognitive cost, even when they are perfectly bilingual. An example relevant to our results would be high school math’s skills which have been acquired in the student’s native language and which she or he now needs to retrieve for the exam in Microeconomics, offered in a second language.

Learning in a non-native language might also slow down mental processes overall and lead to information retrieval interferences during language processing, adding to the costs of engaging in multilingual studies. It therefore does not come as a surprise that we also observe some students trying to avoid the policy of mandatory non-native learning by postponing some exams waiting for them to be taught in their mother tongue, or by taking them in more favorable conditions abroad, for example as part of international student mobility programs such as Erasmus+.

Should you stay or should you go?

Do we claim students should avoid international mobility and studying in a foreign language? Far from it! Numerous scientific studies stress the advantages of language skills in the labor market and a wide body of anecdotal evidence in recruitment processes show that international curricula are among the main requirements for managerial positions. It is not only sheer multilingual proficiency that matters. The experience gained from the immersion into a foreign language and culture signals an applicant’s wider horizon and her or his ability to adapt to new situations and challenges.

The investment in terms of additional effort when engaging in a degree taught in a non-native language is likely to pay off eventually from a personal and a professional viewpoint. However, it is not always an easy route and expectations should be formed based on facts, negative as well as positive. Governing bodies should also grant fair access to schooling and higher education by trying to smooth out inequalities between students of diverse linguistic backgrounds. This can be achieved for example by balancing out the additional cost of non-native learning, in terms, for instance, of longer duration, with financial incentive schemes and by offering targeted tools to overcome linguistic differences more smoothly.