Differences in Work and Leisure Across Countries

An apparent paradox that frequently puzzles journalists is that Europeans work fewer hours than workers in the United States, while in some countries, hourly productivity appears to be the same, or even higher, than that of American workers.

This is not actually a paradox at all.  Much of the decline in European hours worked per-capita came in the form of unemployment.  Rigid labor laws which make it hard to fire (and thus, risky to hire) shut less productive workers out of the market, particularly the young, and those who had been displaced due to disruptive industry change.  So does anything that raises the cost of labor, like, er, loads of mandatory vacation and leave.  When you exclude your least productive workers from the labor force, your measured hourly productivity will be higher, particularly if you use metrics like GDP per hours worked.

This explanation has a broad consensus among both left and right wing economists.  But they are apparently not doing a very good job explaining it, because periodically you see yet another article or blog post remarking on the fact that those vacation-loving Europeans are--surprisingly!--seemingly just as productive as those nose-to-the-grindstone American types.

But though economist may agree about the resolution of this "paradox", a lively debate on the precise causes and effects of Europe's leisure culture: is it a choice, or an unwanted side effect of Europe's heavy government interventions?

Economist Ed Prescott has long argued that much of the difference lies in tax policy.  Raising taxes effectively lowers the payoff to an hour of work, causing Europeans to prefer leisure to work.  At the same time, raising taxes also lowers the payoff to market substitutes for home production: it raises the price your dry cleaning, your prepared meals, your house painters and maid services.  Because of this tax wedge, Europeans take more vacation--but other work shows that they also spend more of that vacation mowing their own lawn, cooking their own meals, and fixing their own garbage disposals.

Other economists demur; attributing the differences to tax policy requires that labor supply be very sensitive to taxes--more sensitive than we in fact observe in most of the microeconomic studies of the question.  Some point to labor regulations as the source of these disparities; others suggest that it's simply a valid--perhaps even admirable--cultural choice to spend more time at home with your family, making wonderful meals and turning your house into a home.

As an avid cook who is currently spending a little bit of spare time doing some DIY work on the kitchen, I am sympathetic to this latter argument.

A new paper may shed a bit of light on this question.  Jungmin Lee, Daiji Kawaguchi, and Daniel S. Hamermesh looked at the effects of new labor market regulations in Korea and Japan that effectively made it more expensive to keep workers at their desks for long days.  They find that "economy-wide drops in market work were reallocated solely to leisure and personal maintenance. In the absence of changing household technology a permanent time gift leads to no increase in time spent in household production by the average individual."

In light of the debate over US/European differences, this is a very interesting result. We can explain the discrepancy a variety of ways: personal preference, taxes, or regulation.  Personal preference, however, does not seem to be a very good explanation for very a very broad phenomenon--after all, Americans also like vacations and home-cooked meals.  It seems more reasonable to look for some sort of policy difference.

Either taxes or regulation can explain the reduction in work hours.  But if this paper is right, regulation cannot explain the increase in home production.  On the other hand, taxes provide a pretty compelling explanation for both, because taxes not only make leisure comparatively more attractive, but also make market substitutes for home production much more expensive.

Of course, there are all sorts of caveats.  Lee et al's results might not be right.  Or it might only apply to Japan and Korea--from what I know about Japan's workplaces, it seems very possible that the workhour reductions were disproportionate enjoyed by men, and that those men may have been resistant to spending the extra time on housework.

Still, it's suggestive.  And very interesting in its own right.