Thursday, July 29, 2004
On Europe's love of leisure
Is "live to work" a better way to live life than "work to live"? Is the Anglo-Saxon work ethic better than the continental European one? Is the 35-hour work week a threat to economic prosperity? Personally, I have always been conflicted about these questions. While I tend to think intuitively that ideas like the 35-work week might be harmful, the economic evidence seems to suggest that European workers are actually more productive than Americans. In an earlier post, I had pointed out that economies in the EU zone, excluding Germany, grew at least as fast as the American over a decade. Cleary, these questions merit serious attention (since they are not the "slam-dunk" a lot of U.S. policy-makers assume it to be) as they will help with formulating public policies even in the newly emerging markets of the world. Katrin Bennhold addresses some of the issues at stake.
Europe, the standard criticism goes, has not matched the American expansion for most of the last decade and has even fallen behind Japan in recent quarters. Its citizens are on average almost 30 percent poorer than their counterparts on the other side of the Atlantic, according to the Organization for Economic Cooperation and Development, a group of 30 countries committed to democracy and the market economy. Potential growth in the next decade risks being stuck at 2 percent - one percentage point below that of the United States.
Some economists and European officials argue that, rather than reflecting a failure to catch up with its more industrious competitors because of faltering productivity growth, Europe's more modest income level mainly reflects policy choices that have tended to put a premium on leisure and equality at the expense of greater wealth.
Over the last half century, Western Europeans have gradually opted to work less and take longer vacations. They have put in place varying national versions of public universal health care, education and retirement benefits. They have set up a complex web of minimum income legislation, including unemployment subsidies and disability benefits, and basic social welfare, in an effort to limit the risk of destitution.
"The welfare state is an efficiency device against market failure,'' said Nicholas Barr, a professor of public economics at the London School of Economics. "It's a perfectly rational policy to accept lower output for higher welfare.''Or as Joaquín Almunia, European commissioner for economic and monetary affairs, put it, for Europeans, economic growth is a tool, not an end in itself. "We are not in a race with the U.S.,'' he said. "Our goal is not to grow as fast as the U.S. or anybody else, but to do what we need to protect our economic and social model.''
Some economists say Europe's social model is costing it dearly. In a society that prides itself on egalitarian values, too many people are unemployed or outside the labor market, doubly raiding public coffers by not paying taxes and often receiving benefits at the same time. The jobless rate in the European Union's 15 old members rose to 7.8 percent last year, compared with 6.1 percent in the United States, said the OECD. With a growing number of retirees, joblessness is increasingly straining the continent's state-financed pension and health systems: the combined burden is forecast to rise to as much as 8 percent of gross domestic product in most European Union member nations, the European Commission estimates.
A generous welfare state does not only have costs. Europe has less child poverty, a lower incidence of illiteracy and a smaller prison population than the United States, OECD statistics show. Europeans have a slightly higher life expectancy and can hope to spend more of their old age in good health than Americans.
Ultimately, is economic growth about individuals being happier (as a result of economic growth, increased incomes etc) or is economic growth good in and of itself?
According to surveys by the World Database of Happiness, which is run by Prof. Ruut Veenhoven at Erasmus University in Rotterdam, the Netherlands, residents in many European nations are more satisfied with their lives than Americans and residents in more hard-working nations, like Japan, where people have been clocking even more hours than in the United States. More significantly, measures of happiness in the America and Japan has been flat over the last 30 years, while they have been rising in most Western European countries.
Europe, the standard criticism goes, has not matched the American expansion for most of the last decade and has even fallen behind Japan in recent quarters. Its citizens are on average almost 30 percent poorer than their counterparts on the other side of the Atlantic, according to the Organization for Economic Cooperation and Development, a group of 30 countries committed to democracy and the market economy. Potential growth in the next decade risks being stuck at 2 percent - one percentage point below that of the United States.
Some economists and European officials argue that, rather than reflecting a failure to catch up with its more industrious competitors because of faltering productivity growth, Europe's more modest income level mainly reflects policy choices that have tended to put a premium on leisure and equality at the expense of greater wealth.
Over the last half century, Western Europeans have gradually opted to work less and take longer vacations. They have put in place varying national versions of public universal health care, education and retirement benefits. They have set up a complex web of minimum income legislation, including unemployment subsidies and disability benefits, and basic social welfare, in an effort to limit the risk of destitution.
"The welfare state is an efficiency device against market failure,'' said Nicholas Barr, a professor of public economics at the London School of Economics. "It's a perfectly rational policy to accept lower output for higher welfare.''Or as Joaquín Almunia, European commissioner for economic and monetary affairs, put it, for Europeans, economic growth is a tool, not an end in itself. "We are not in a race with the U.S.,'' he said. "Our goal is not to grow as fast as the U.S. or anybody else, but to do what we need to protect our economic and social model.''
Some economists say Europe's social model is costing it dearly. In a society that prides itself on egalitarian values, too many people are unemployed or outside the labor market, doubly raiding public coffers by not paying taxes and often receiving benefits at the same time. The jobless rate in the European Union's 15 old members rose to 7.8 percent last year, compared with 6.1 percent in the United States, said the OECD. With a growing number of retirees, joblessness is increasingly straining the continent's state-financed pension and health systems: the combined burden is forecast to rise to as much as 8 percent of gross domestic product in most European Union member nations, the European Commission estimates.
A generous welfare state does not only have costs. Europe has less child poverty, a lower incidence of illiteracy and a smaller prison population than the United States, OECD statistics show. Europeans have a slightly higher life expectancy and can hope to spend more of their old age in good health than Americans.
Ultimately, is economic growth about individuals being happier (as a result of economic growth, increased incomes etc) or is economic growth good in and of itself?
According to surveys by the World Database of Happiness, which is run by Prof. Ruut Veenhoven at Erasmus University in Rotterdam, the Netherlands, residents in many European nations are more satisfied with their lives than Americans and residents in more hard-working nations, like Japan, where people have been clocking even more hours than in the United States. More significantly, measures of happiness in the America and Japan has been flat over the last 30 years, while they have been rising in most Western European countries.
