Hours Worked In the U.S. vs. Europe
By Arnold Kling
The OECD looks at total hours worked in its member countries.
The performance of US labour markets also looks quite strong when assessed in terms of hours worked per capita, a more comprehensive measure of “labour utilisation” than the employment rate. Per capita hours fell during 1970-2002 for most OECD countries and by over 20% in France; but they rose in several countries, and by fully 20% in the United States…
Two factors underlie the divergence between the United States and Europe since 1970 in hours worked per capita. First, hours worked per capita are influenced by the share of the population actually working, and the employment rate has increased more strongly in the United States than in most other OECD countries. Increased participation of women in paid employment has tended to push up employment everywhere. However, the potential impact on the total employment rate has been off-set to a much greater degree outside of the United States by retirement at younger ages, sharper reductions in employment among teens and young adults, and a tendency for unemployment rates to drift upwards.
Secondly, the length of the average work year has not declined as much since 1970 in the United States as it has in most European countries, including France and Germany. In fact, annual hours per employed person have remained more or less unchanged for US workers since 1980. By contrast, reductions in the length of the standard work week have continued in most other high-income countries, as have increases in annual days off for public holidays and vacation.
Thanks to Barry Ritholtz for pointing to a Wall Street Journal story on the report.
Edward Prescott attributes this difference to higher taxes in Europe.
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?
He argues that high marginal tax rates combined with highly elastic labor supply are what account for the difference. He says that Europeans could reduce the distortion of taxes by changing the way that pensions are financed.
The high labor supply elasticity does mean that as populations age, promises of payments to the current and future old cannot be financed by increasing tax rates. These promises can be honored by reducing the effective marginal tax rate on labor and moving toward retirement systems with the property that benefits on margin increase proportionally to contributions. Requiring people to save for their retirement years is not a tax and does not reduce labor supply.
For Discussion. How could one test to see whether the behavior of Europeans with respect to leisure vs. cash income results from choice or from labor market distortions?