By Arnold Kling
The Economic Policy Institute, a left-wing think tank (well, the newspapers always refer to Cato and Heritage as right-wing think tanks, don’t they?), writes,
seven OECD countries have passed the U.S. in productivity: Norway, with 131 percent of U.S. productivity levels; Belgium, 11 percent; Netherlands, 106 percent; Italy, 105 percent; France and Ireland, 103 percent; and Germany, 101 percent. The ability of these countries to surpass U.S. productivity in 2002 suggests that their comprehensive welfare and collective-bargaining systems have not stymied income growth or improvements in economic efficiency relative to the more free-market-oriented U.S.
Actually, it suggests no such thing. As Brad DeLong once pointed out to me in an email, you would expect hourly productivity (which the EPI is using) to be higher in Europe than the U.S., because of all the cost-increasing labor market restrictions there. Any business anywhere will avoid hiring workers beyond the point where productivity fails to match costs. The European productivity data simply illustrate basic economic behavior.
Bruce Bartlett, who the newspapers might refer to as a right-wing think tank, writes,
A new report from the Bureau of Labor Statistics shows the United States with real gross domestic product per person in 2003 of $34,960 (in 1999 dollars). This is well above every European country. The most productive European country, Norway, has a per capita GDP of just $30,882 (converted using purchasing power parity exchange rates). The major countries of Europe are even further behind: United Kingdom ($26,039), France ($25,578), Italy ($24,894) and Germany ($24,813).
In other words, Europeans produce no more per year than Americans did 20 years ago.
What Bartlett is quoting are statistics on annual productivity. The reason that the U.S. comes out so much higher on annual productivity than hourly productivity is that U.S. workers work more hours. The question then arises as to how to value the additional leisure time of European workers. If it is all voluntary, then the higher annual productivity figures are completely misleading, and the Europeans in fact are doing well.
Bartlett questions how much the Europeans are enjoying their leisure.
One reason for the short workday is that Europeans seem to get sick a lot more than Americans. According to a July 25 report in The New York Times, on an average day 25 percent of Norway’s workers call in sick. A 2002 study in Sweden found that the average worker there took more than 30 sick days per year. Makes you wonder just how good their health care systems really are.
Bartlett cites work by Edward Prescott showing that high taxes are a significant factor in leading Europeans to put in less time in market activity.
Don Boudreaux writes,
Differences in marginal tax rates is one that [op-ed writer Niall] Ferguson mentions, along with government-enforced restrictions on the maximum number of hours anyone can work per week. Also mentioned is the fact that American employers can – compared to their European counterparts – much more easily fire lazy employees.
These reasons strike me as pretty sound explanations for why the average German worker works 22% fewer hours per year than does the average American worker, and the average French worker toils 32% fewer hours.
But Ferguson ends his op-ed curiously: despite these strong explanations mentioned earlier in his op-ed, he concludes that the likely explanation for this difference in work patterns is the fact that more Americans than Europeans attend church. Apart from an allusion to Max Weber’s protestant-ethic thesis, Ferguson offers no further justification for identifying Americans’ greater church attendance as a reason why Americans work more than Europeans.
Perhaps the connection is that the religion-reinforced work ethic in America is reflected in a tax code that is relatively less punitive of labor than that in Europe.
UPDATE: Stephen Kirchner led me to an article by Robert Gordon.
Europeans worked longer hours than Americans during the 1945-73 era of postwar reconstruction, so their passion for long vacations and short weekly hours of work is a recently acquired taste.
…gap between a Europe/U. S. ratio of 93 percent for [hourly] productivity and 77 percent for [annual] output per capita, I would make a wild guess that about one-third of the difference represents voluntarily chosen leisure and the remaining two-thirds represents a lack of employment opportunities. This would imply that the “welfare-corrected” ratio in the year 2000 is neither 77 nor 93 percent, but something closer to 85 percent.
For Discussion. What evidence is consistent with the view that the labor-leisure choice is adversely distorted in Europe, and what evidence suggests otherwise?