Habit, prisoner's dilemma and Americans’ welfare cost of working much more than Europeans

• DOI: http://doi.org/10.1111/twec.12493
• Author: Maurice Schiff
• Published date: 01 September 2017
• Date: 01 September 2017

ORIGINAL ARTICLE

Habit, prisoner’s dilemma and Americans’welfare

cost of working much more than Europeans

Maurice Schiff

Fellow, Institute for the Study of Labor (IZA), Bonn, Germany

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INTRODUCTION

The number of hours worked has declined over the last century, especially in developed countries,

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although the decline has been uneven, with Americans working much more than (Western) Europeans

in the last half century (OECD, 2016). One hypothesis is that incentives differ in the two regions (see

Olovsson, 2009 and Olovsson et al., 2003 for Sweden and Prescott, 2004 for Europe). Prescott argues

that Europe’s higher taxes fully explain the work-time difference and that they reduced welfare in

Europe below the level it would have achieved under US taxes.

This paper examines the hypothesis that income’s social value is below its private value

because of negative spillover effects and that Europe takes these into account while the United

States does not. Hence, Americans are caught in an “overworking trap”and would gain by work-

ing less.

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This view appears to be supported by studies (Schulte, 2014a, 2014b; Webster, 2008)

showing that Americans suffer from sleep shortage, many claiming to be too busy to take a vaca-

tion or sleep, and some working seventy hours or more per week, stating they have no choice “be-

cause everyone else at work does,”a negative externality. Another hypothesis proposed by

Alesina, Glaeser, and Sacerdote (2006), and which has similar implications, is that the social value

of leisure is greater than its private value because of a positive spillover effect or “social multi-

plier”(Glaeser, Sacerdote, & Scheinkman, 2003). A fourth hypothesis, that Europe’s work-time

restrictions are excessive, is also examined.

This paper makes several contributions to the analysis: (i) it presents additional arguments as to

why tax differences do not explain work-time differences and proposes a different hypothesis for

Europe’s lower labour supply; (ii) it uses a simple model and work-time data to derive the private

and social optimum for leisure and work time, as well as the benefit for the United States of reduc-

ing work time to Europe’s level; and (iii) it derives the conditions under which a policy that

restricts work time excessively remains beneficial.

The pape r is organised as follows. Section 2 re-examines the literature on why Europe has

restricted work time while the United States has not, and provides an additional explanation based

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The decline is smaller than some had predicted. For instance, Keynes (1930) expected people to work some 15 hr a week

by 2030, devoting the rest of their time to leisure and culture.

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In a similar vein, Burda, Hamermesh and Weil (2008) find that US work behaviour—with much more work at irregular

hours (evenings and weekends) than in Europe—may represent an inferior equilibrium.

DOI: 10.1111/twec.12493

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©2017 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/twec World Econ. 2017;40:1708–1717.