Monday, October 08, 2007

Land of Opportunity

According to Claudio Michelacci and Josep Pijoan-Mas, it isn't Europe.

Since the early 1970s Americans have gradually outworked their European counterparts so much, that today GDP per capita is 30% higher in the U.S. And, hours worked explains just about all of that gap. They write:

...we argue that workers view working hours as an investment as well as a source of current income. By working longer hours, they acquire greater skills, get promoted more frequently or switch to better jobs. The greater the expected career gains, the greater the incentive to work longer hours. ...Europeans and Americans...face different incentives during their working lives.

And what explains the different incentives? It's--Paul Krugman, call your office--our old friend, income inequality:

Individuals work longer hours when wage inequality is higher. ...for the U.S. and in...Germany, there is evidence that individuals work longer hours in occupations with larger wage inequality.

But, income inequality has increased little in Germany in the last 35 years. Not so, the U.S.

The fraction of prime age male workers working very long hours has increased substantially in the US. ...this is a side effect of the higher inter-temporal return to hours worked caused by the increase in wage inequality.

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