Visitors gather on Hetou Old Street in Tangshan, Hebei Province, to watch a live performance of “Tang Emperor’s Eastern Expedition” during the 2025 Dragon Boat Festival holiday. Photo: FangKe/CSST

International experience suggests that during periods of rapid economic growth, consumers tend to reduce savings and increase consumption. In China, however, household consumption has remained persistently low even amid sustained macroeconomic growth, standing in sharp contrast to the experience of many other countries.

China’s household consumption trends

From 1992 to 2000, China’s household consumption rate was below the global average of approximately 60%. During this period, China’s final consumption rate, which includes government consupmtion, was broadly comparable to the global average. Between 2000 and 2010, however, the household consumption rate declined and China’s final consumption rate over the same peirod dropped as well. Since 2010, household consumption has shown some recovery.

Trends in household and final consumption rates since 2010 indicate that weak consumption in China is primarily attributable to the persistently low household consumption rate. An excessively low household consumption rate not only undermines the sustainability of macroeconomic growth, but also suggests that the gains from economic development have not been fully translated into improvements in residents’ welfare, thereby constraining the realization of the ultimate goal of China’s socialist market economy with Chinese characteristics. Against the backdrop of insufficient domestic demand and slowing growth, it is therefore particularly urgent to examine the causes of China’s low household consumption rate from both theoretical and empirical perspectives.

Consumption needs time

From a theoretical standpoint, consumption involves not only monetary inputs but also time inputs. Empirical evidence shows that a country’s total consumption tends to increase as leisure time expands. Studies focusing on tourism consumption in China, for example, find a significant positive correlation between increased leisure time and tourism expenditure. However, this line of research has largely confined itself to specific consumption behaviors influenced by vacation policies, without examining more generally how time constraints shape residents’ consumption decisions.

The theory of time allocation posits that consumers combine time resources and market goods to “produce” consumption and choose the optimal mix of the two to maximize utility. Within this framework, the true cost of consumption includes not only the purchase price of goods and services, but also the time required to use or produce them. Expenditure on non-durable goods can be further decomposed into core consumption and household production or work-related consumption, helping to explain the “hump-shaped” pattern of consumption over the life cycle as well as consumption inequality. Consumption can thus be understood as a process requiring the joint input of time and goods or services, and consumer goods can be divided into time-consuming and non-time-consuming categories.

Time-consuming consumer goods require simultaneous inputs of time and goods or services, such as travelling or watching movies. Non-time-consuming consumer goods, by contrast, involve only goods or services, such as household cleaning or childcare services. Model-based analysis shows that working hours are negatively correlated with the consumption of time-consuming goods, but positively correlated with the consumption of non-time-consuming goods. The effects of changes in working hours on consumer utility can be decomposed into time effects, income effects, and substitution effects.

The time effect refers to the direct impact of changes in working hours on total utility through time constraints. This effect operates independently of price mechanisms and influences consumption choices solely through changes in time endowments, with its impact strictly confined to time-consuming goods. In essence, it reflects the constraint imposed by the reallocation of time resources. The income effect captures the influence of working hours on both time-consuming and non-time-consuming consumption through income constraints, reflecting how changes in wage income affect consumption levels. The substitution effect describes the trade-off between time-consuming and non-time-consuming goods as relative prices change, leading to adjustments in marginal rates of substitution. Because these three effects operate in different directions, the overall effect of working hours on consumption is theoretically indeterminate and depends on their relative magnitudes in practice.

Although theory suggests that working hours affect household consumption decisions through three primary channels, precisely estimating the dynamics of this relationship presents significant technical challenges. Income and disposable time are highly correlated and may simultaneously influence consumption decisions, while both disposable time and consumption decisions may be simultaneously affected by unobservable factors such as individual differentiated preferences for leisure. To better address endogeneity and achieve more credible causal identification, this study exploits the policy shock generated by China’s 1994 reform of the employee working-hour system and applies a difference-in-differences approach to estimate the impact of working hours on household consumption. The results indicate a statistically significant negative relationship between working hours and consumption expenditure.

Income correlates with consumption

Income level remains a key determinant of household consumption, and the opportunity cost of time varies across income groups. Using a relative income standard to categorize different income groups, households with per capita income between 75% and 200% of the median are classified as middle-income, those below 75% as low-income, and those above 200% as high-income. This classification allows an examination of whether the consumption-enhancing effects of reduced working hours differ across income groups.

The results show that adjustments to the working-hour system significantly increase consumption expenditure among middle-income households. Compared with other groups, middle-income households tend to have higher educational attainment, rely primarily on wage income, and enjoy relatively stable employment. When working hours are shortened without significantly affecting wage income, consumption among this group rises markedly.

For low-income households, income constraints dominate consumption decisions. With limited disposable income, additional time made available by shorter working hours is insufficient to generate a meaningful increase in consumption. High-income households, meanwhile, typically draw on more diversified income sources, including business and property income, and enjoy greater autonomy in adjusting their working hours. Although shorter working hours could in principle increase the time available for consumption, the high opportunity cost of time leads these households to weigh income losses against leisure gains. As a result, even under working-hour reforms, they may not substantially reduce working time, and no significant consumption-promoting effect is observed for this group.

The theory of time allocation rests on the premise that each individual has a fixed and limited time endowment of 24 hours per day. Under this constraint, time allocation across activities resembles a zero-sum game, in which more time devoted to one activity necessarily reduces time available for others. Based on this insight, the study examines heterogeneous responses to working-hour reform among groups with different initial time endowments. The sample is divided into two categories: those who spend time on household shopping on an average day—indicating relatively abundant consumption time—and those who do not, indicating more severe time constraints. The findings show that shorter working hours significantly increase consumption among those who initially lacked time for consumption, while having no significant effect on those whose consumption time was already relatively ample. This suggests a clear threshold effect: only when consumers face binding time constraints does additional disposable time translate into higher consumption, whereas for groups whose consumption time is already relatively ample, the additional free time generated by policy adjustment is unlikely to produce a further stimulus to consumption.

Overall, the analysis confirms that reducing working hours significantly boosts household consumption in China and that consumption is subject to a distinct time-constraint effect. By incorporating scarce time resources into the consumer decision-making framework, the study highlights the independent role of time endowments as a production factor, exerting a direct influence on consumption behavior and individual utility. This time-constraint effect operates independently of price mechanisms, shaping consumption choices solely through changes in time availability.

Individual time resources are inherently fixed and limited to 24 hours per day. When working hours are reduced, the time available for consumption expands, and consumption expenditure may increase accordingly. At the same time, time-consuming consumer goods require the simultaneous input of time resources and goods or services, whereas non-time-consuming consumer goods do not require a time input. As a result, the time-constraint effect of consumption operates primarily on time-consuming consumer goods.

Using panel data from the China Household Finance Survey for 2015, 2017, and 2019, the study further examines the impact of working hours on expenditure for time-consuming and non-time-consuming consumer goods, respectively. The results show that under the current working system, a reduction in average daily working hours significantly increases residents’ total annual consumption expenditure. This increase is driven by a significant rise in spending on time-consuming consumer goods, while the coefficient for non-time-consuming consumer goods is not statistically significant. These findings confirm that long working hours suppress consumption growth by squeezing the time resources available for consumption. In particular, when working hours are excessively long and encroach on time that could otherwise be devoted to consumption, residents are unable to engage in time-consuming forms of consumption that require sustained time investment.

Liu Na is a professor from the Business School of Xiangtan University; Li Jing is from the School of Economics at Hunan University of Finance and Economics; Zhang Chuanchuan is an associate professor from the School of Economics at Zhejiang University. This article has been edited and excerpted from Journal of Quantitative & Technical Economics, Issue 9, 2025.