America vs. Europe

 

Working from home and the US-Europe divide

Americans are no longer the rich world’s great office drones

The Economist. May 1st 2024

When it comes to economic growth, America comfortably beats Europe. Many factors have fed America’s outperformance, from tech innovation to vast oil reserves. But there is one explanation that seems almost too simplistic: that “Americans just work harder”, as the head of Norway’s oil fund put it in an interview with the Financial Times on April 24th.

The numbers do in fact bear out this assertion—a rare case of national stereotypes being empirically provable. On average Americans work 1,811 hours per year, according to data from the oecd, a club of mostly rich countries. That is 15% more than in the eu, where the average is 1,571 hours. And it is not just that Europeans spend a few extra weeks on the beach. The typical working day in Britain, France and Germany is half an hour shorter than in America, according to the International Labour Organisation.

Observing these differences, it is natural to ask which is the better way of living—with more money or more free time? The reality is that it is difficult for people to choose. Those in America work according to American schedules; those in Europe conform to European norms. Analytically, the more fruitful question is why Americans put in longer hours. The answer leads to a curious new observation: that remote work is making America’s office drones a little more European, albeit with a puritanical twist.

A first guess suggests that culture might account for the variation in work hours. Maybe Europeans enjoy their leisure more. They are spoilt for choice about how to spend time off, with beautiful cities, culinary delights, rugged mountains and much else besides just a short train ride or discount flight away. America might simply have less to offer travellers, and what it does have is spread over a much bigger area, which goes some way to explain why Europe draws about 150m tourists from abroad a year, twice as many as America. As for Americans, surveys indicate that they view hard work as intrinsically worthwhile. “Rugged individualism” is, after all, what built the country.

But the difficulty with chalking up the difference to culture is that until the early 1970s many Europeans worked more. American working hours are basically the same now as back then. The big change is that Europeans now toil less. Hours are down a whopping 30% in Germany over the past half-century. Something beyond culture—a slow-moving, ill-defined variable—is at play.

Edward Prescott, an American economist, came to a provocative conclusion, arguing that the key was taxation. Until the early 1970s tax levels were similar in America and Europe, and so were hours worked. By the early 1990s Europe’s taxes had become more burdensome and, in Prescott’s view, its employees less motivated. A substantial gap persists today: American tax revenue is 28% of gdp, compared with 40% or so in Europe.

But the effect of taxation on work is far from straightforward. Some workers may respond to lower taxes by putting in longer hours, knowing that they can take more money home. Others, by contrast, may decide that the additional post-tax earnings allow them to work less and still enjoy their desired lifestyles. A recent study by Jósef Sigurdsson of Stockholm University examined how Icelandic workers responded to a one-year income-tax holiday in 1987, when the country overhauled its tax system. Although people with more flexibility—especially younger ones in part-time jobs—did indeed put in more hours, the overall increase in work was modest relative to that implied by Prescott’s model.

Regulation seems to matter more. European rules give workers power, from generous parental-leave policies to stricter laws on firing staff. Many European countries try to put caps on working time, such as France’s famous 35-hour work-week. These caps have been somewhat misguided, failing to boost employment as their proponents wished. They also have plenty of loopholes. Yet most research agrees that they have reduced work hours.

Another important relationship is that, as people get richer, they typically want to work less. A recent paper by the imf shows a remarkably strong link between gdp per person and hours worked in Europe. People in richer countries, such as the Netherlands, generally work less than those in poorer countries, such as Bulgaria. That, however, only reframes the question. Americans are wealthier than most Europeans, so why do they still work more?

Perhaps leisure is a collective-action problem. Americans may want to ask their bosses for longer holidays but are worried about being seen as slackers. A paper in 2005 by Alberto Alesina of Harvard University and colleagues argued that Europe’s stronger unions had in effect solved this collective-action problem by fighting for paid vacations, which ended up enshrined in law. America, with weaker unions, is one of the few countries with no mandatory paid vacations. Europe’s well-regulated leisure time may then beget more leisure because it is more socially acceptable, and the market responds by supplying more good ways not to work. It is a virtuous cycle of lovely cafés.

Just another day out the office

One fascinating new development is a discrepancy in the rise of remote work. In 2023 the Global Survey of Working Arrangements found that full-time employees in America work from home 1.4 days a week, while those in Europe do so for 0.8 days. Applying this home-office split to the working-hours data compiled by the oecd yields a striking result: Europeans and Americans now spend almost exactly the same amount of time in the office, with 1,320 hours a year for the former and 1,304 for the latter.

In other words, the extra 15% of work done by Americans annually is now from the comfort of their own homes—or occasionally on the beach, perhaps even one in Europe. Americans do still work harder, but rather more enjoyably than in the past. ■