Home Work and Market Work in the US and Continental Europe

It is well known that hours per working-age person in continental Europe have shown a rather different time series pattern than in the US. While in 1970, hours per working-age person were similar, they subsequently fell in continental Europe but did not show a clear trend in the US. Strikingly, almost the entire difference in hours between continental Europe and the US has been concentrated in the service sector. A growing literature seeks to understand the underlying reasons for these different patterns. For instance, Prescott (2004) suggested changes in effective taxes caused the different behavior of aggregate hours worked by working-age population. Rogerson (2008) added to Prescott’s suggestion the observation that changes in effective taxes mostly affect hours worked in market-produced services. In this paper, we confront the tax explanation with new evidence. In particular, we document two sets of new empirical facts, which both cast serious doubt on the tax explanation. In doing this, we focus on the gap in hours per working-age population between the US and Continental Europe where Continental Europe is defined to be France and Germany.