Sunday, February 1, 2009

European v American Model: Labour and Leisure

Recently, I was invited to adjudicate TCD's Hist annual debate with Yale. It was, as such nights always are, a really great exchange of good-spirited fun and youthful energy. The topic of the debate was the clash of two values systems: the so-called American Model of economic development against the caring social-economy model this side of the Atlantic.

Great fun aside, neither Yale, nor TCD team produced much of earth shattering factual evidence to defend their arguments. Instead, several commonly held cliches, became the focal points fo the entire discourse.

One of these was the argument advanced by the TCD side that Americans enjoy lower quality of life than Europeans because the former work longer hours than the latter. It was frustrating watching the Yale team inventing epicycles to by-pass the thorny issue. In reality they did not have to do this, since the claim is simply not true.

Some years ago I worte about the matter in several articles (see an example here). But all comparisons between the quality of hours spent outside paid work enjoyed by Americans and Europeans are somewhat qualitative. 'Sure, maybe Americans do less own work at home, but what if Europeans actually enjoy house work?' goes an argument from the Eurofans side.

Ok, so Americans do indeed work longer hours than Europeans do. The question then becomes as to why these differences arise? Economics distinguishes two sources of greater aggregate hours worked in any economy:
  • the extensive margin - differences in hours worked due to differences in employment and labour force participation rates; and
  • the intensive margin - the number of hours worked per person employed.
A paper, published in November 2008 by the German Institute for the Study of Labor (IZA Discussion Paper No 3846, Langot, F. and C. Quintero-Rojas "European vs. American Hours Worked: Assessing the Role of the Extensive and Intensive Margins") shows very interesting results:
  • Concerning the impact of the extensive margin, the authors show that "the two dimensions of the extensive margin, the employment rate and the participation rate, explain the most of the total-hours-gap between regions. Moreover, both ratios have similar weight." In other words, Americans work longer hours than Europeans primarily because more Americans than Europeans are in employment and in the labour force. To say that Europeans 'enjoy' less work and more leisure is, according to this finding, equivalent to say that Europeans enjoy being unemployed and having no prospect of ever gaining a job in the future.
  • "Conversely," say the authors, "the intensive margin, measured by the number of hours worked per employee, has the smallest role."
The paper looks at data for Belgium, Spain, France, Italy, UK and US over 1960-2003. Here are few more details from their findings:

"We observe that in most countries the role of the intensive margin seems to be important before the mid 1970s" [which implies that American workers, on average, tended to work longer hours per person than their European counterparts not in the years of heartless Reganomics, but in the years of liberal Democrats - Kennedy, LBJ and Jimmy 'The Peanut' Carter].

"Thereafter, the contribution of the average hours per employee is very poor... In general, the two dimensions of the extensive margin have a minor impact before the 1970s. Thereafter, in all countries the relevance of the three variables is quite similar."
[This shows that consigned to long term unemployment, Europeans are working less since the onset of the 1980s - precisely when Europe decided to depart from the 'American' model of flexible labour markets in favour of the socialist/welfare state model of employment].

And so, "about 2/3 of the observed fall in the total hours of market work in European countries, relative to the US, is mostly explained by the dynamics of the extensive margin (that is, by the employment and the participation), and roughly 1/3 by the dynamics of the intensive margin (the hours worked per employee), particularly after the 1980s."

I rest my case...

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