Over-worked or Over-taxed?
Americans work more than Europeans. Do we work too much, or does Europe tax work too much? Edward Prescott argues the latter.
Americans on a per person aged 15-64 basis work in the market sector 50 percent more than do the French. This was not always the case. In the early 1970s, Americans allocated less time to the market than did the French. In comparisons between Americans and Germans, the story is the same. Why are there such large differences in labor supply across these countries? Why did the relative labor supplies change so much over time? In this lecture, I determine the importance of tax rates in accounting for these differences in labor supply for the major advanced industrial countries and find that tax rates alone account
for most of these differences in labor supply.
For Discussion. Prescott estimates that for every 100 euros a worker produces in the high-tax countries, 60 euros goes to taxes and only 40 euros goes to that worker’s consumption. Is that a sufficiently high tax rate to have a large effect on labor supply?