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Can US Coordination Failure Explain Why Americans Work So Much More than Europeans?

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  • Schiff, Maurice

    (World Bank)

Abstract

Prescott (2004) argues that Europeans work much less than Americans because of higher taxes and that they would gain significantly by charging US taxes and working as much as Americans. I argue that the opposite may be true and that Americans work more than Europeans due to a coordination failure. Studies show that utility falls with other people's income, a negative externality that is internalized in Europe through laws on the minimum amount of vacation time (and maximum hours of work), something unthinkable in the US. Thus, Americans may be stuck in an "overworking trap" and would gain by working less. A simple model and data on work time are used to obtain an estimate of the US welfare gain from reducing its work time to Europe's level. On the other hand, if neither EU nor US work time is optimal, then the sign of the EU-to-US welfare difference is positive (ambiguous) if EU work time is greater (smaller) than the optimum, while simulations show that even in the latter case, EU welfare is greater than US welfare if, relative to the optimum, the EU work 'shortage' is smaller than the US work 'surplus'.

Suggested Citation

  • Schiff, Maurice, 2014. "Can US Coordination Failure Explain Why Americans Work So Much More than Europeans?," IZA Discussion Papers 8041, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp8041
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    File URL: https://docs.iza.org/dp8041.pdf
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    References listed on IDEAS

    as
    1. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 28(Jul), pages 2-13.
    2. Bruno S. Frey, 1997. "Not Just for the Money," Books, Edward Elgar Publishing, number 1183.
    3. Conny Olovsson, 2009. "Why Do Europeans Work So Little?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(1), pages 39-61, February.
    4. E. Paul Durrenberger, 2012. "Labour," Chapters, in: James G. Carrier (ed.), A Handbook of Economic Anthropology, Second Edition, chapter 8, Edward Elgar Publishing.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    US coordination failure; work; leisure; Europe;
    All these keywords.

    JEL classification:

    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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