SubscribeMr Blanchard's analysis finds that most of the fall in hours worked in Europe has been due to a decline in average hours per worker (thanks to longer holidays or shorter working weeks), rather than a rise in unemployment or a fall in the proportion of the population seeking work. Furthermore, most of the reduction in average hours worked was due to full-time workers putting in shorter hours, not because of an increase in part-time workers who might not have been able to get full-time jobs. Mr Blanchard concludes that the fall in hours worked is mostly voluntary.
But that does not settle the matter. Perhaps Europeans choose to work fewer hours because of high taxes. Marginal tax rates have indeed risen by more in Europe than in America over the past 30 years. Taxes reduce the incentive to work an extra hour rather than go home, once a reasonable standard of living has been reached.
This is a hotly debated issue. A study** by Edward Prescott, an economist at the Federal Reserve Bank of Minneapolis, claims that virtually all of the fall in hours worked in the euro area can be blamed on higher taxes. But the flaw in this theory, says Mr Blanchard, is that within Europe there is little correlation between the fall in hours worked and the increase in taxes. Ireland has seen a 25% fall in average hours worked since 1970, despite an even smaller increase in tax rates than in America. Other studies have found that taxes have played a more modest role, accounting for about one-third of the fall in hours worked per person.
Mr Blanchard concludes that most, but not all, of the fall in hours worked over the past 30 years is due to a preference for more leisure as incomes have increased. Europeans simply enjoy leisure more. Americans seem more obsessed with keeping up with the Jones's in terms of their consumption of material goods. As a result, they may work too hard and consume too little leisure. Their GDP figures look good, but perhaps at a cost to their overall economic welfare.
Robert Gordon‡, an economist at Northwestern University, agrees that GDP comparisons overstate America's living standards, but he goes even further. America has to spend more than Europe, he says, on both heating and air conditioning because of its more extreme climate. This boosts GDP, but does not enhance welfare. America's higher crime rate means that more of its GDP is spent on home and business security. The cost of keeping 2m people in prison, a far bigger percentage of its population than in Europe, boosts America's GDP, but not its welfare. The convenience of Europe's public transport also does not show up in GDP figures. Taking account of all these factors and adding in the value of extra leisure time, Mr Gordon reckons that Europe's living standards are now less than 10% behind America's.
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For instance, if a nation is geographically small and, consequently, the populous lives in small houses, does this mean such a nation has a low standard of living?
If a nation lives in a cold environment and, consequently, the populous has little desire to have air conditioning, then does this mean such a nation has a low standard of living?
Moreover, what if a person lives in community where work, education, and amenities are a short walk away? What need would such a person have with a vehicle? Does this necessarily mean such a person has a low standard of living if he or she is not interested in a vehicle?
posted by quam at 10:39 AM on June 20, 2004