Letters

Why Work?

Will working less really make America more productive? 

While I agree with Charles Kenny ("Work More, Make More?" November 2012) that, given their level of prosperity, Americans could afford to take a few more days off every year, it is hard to believe that they could reduce their working hours to the French or German level without significantly impairing their standard of living.

In the early 1970s, output per worker was more than 25 percent lower in Western Europe than in the United States. Although this gap has not shrunk over the years, the underlying situation has evolved tremendously. Back in the 1970s, Europeans were working slightly more hours than Americans, but their hourly productivity was about 30 percent lower. Today, Europeans are nearly as productive as Americans thanks to technological catch-up, but as of 1996 they worked almost 25 percent less -- a gap that subsequent research suggests hasn't changed much. Thus, contrary to what Kenny argues, we can almost entirely attribute the United States' higher GDP per capita relative to France or Germany to a difference in the number of hours worked.

Why do Europeans choose to work so much less than Americans? Research indicates that a big part of the answer, if not the whole answer, is taxes. The unprecedented expansion in the size of the welfare state across European countries over the past 40 years has led to a steady increase in the overall rate of taxation of labor income (which includes payroll, income, and consumption taxes). And high taxes along with generous social transfers reduce incentives to work. Some people respond by cutting their work hours, while others choose to stay at home for a larger fraction of their lives. Recent empirical estimates of the elasticity of labor supply (i.e., the responsiveness of the number of hours worked to changes in the net wage) suggest that the difference in tax rates across the Atlantic could easily account for the difference in the number of hours worked.

If Americans were truly concerned that they're putting in too much time at the office -- that they're caught up in a rat race to consume more than their neighbors -- then they would favor a much higher tax rate on labor income, not for redistribution purposes but rather to discourage people from working. I doubt such a proposal would be very popular.

JEAN-BAPTISTE MICHAU
Assistant Professor of Economics
École Polytechnique
Palaiseau, France


Charles Kenny replies:

Jean-Baptiste Michau notes that GDP per hour worked is similar in Europe and the United States, whereas it used to be considerably lower in Europe. He uses the economist's all-purpose term for "stuff that isn't capital or labor inputs" to explain that: "technological catch-up." But one factor in the rapid relative growth of per-hour labor productivity in Europe may very well be shorter working hours themselves. I note in the article the considerable evidence that if you give people less time to produce something, they produce it faster.

That's not to say there is no tradeoff at all. But because hours worked explains a small proportion of global income differences, Americans could afford to work less and still enjoy a high level of consumption -- alongside a higher quality of life. And I'm not convinced that higher tax rates are the way to achieve that end. U.S. tax rates and working hours have both declined over the past two decades, suggesting the negative relationship between the two is weak at best. If they are negatively related, that only suggests that the best cure for America's fiscal woes is also the cure for its addiction to work. 

Letters

BRIC by BRIC

Can these very different countries really manage to work together?

In his recent essay ("Think Again: The BRICS," November 2012), Antoine van Agtmael ably dissects much of the economic hype surrounding the BRICS. But he does not go far enough in questioning their efforts to institutionalize themselves as a political association. The fundamental heterogeneity of Brazil, Russia, India, China, and South Africa belies their efforts to act in a unified manner or emerge as a cohesive alternative to the present Western-designed international economic and political system.

The BRICS (which did not originally include South Africa) were first identified as a unit in 2001 by an economist at Goldman Sachs because they were the largest emerging markets and were experiencing the most rapid economic growth at the time. Yet there is nothing natural about the grouping. Indeed, these disparate countries have little in common aside from impressive economic growth over the past decade and an individual desire for a greater say in the institutions of global governance. From an economic standpoint, China and India's growth is driven by services and manufacturing while Brazil and Russia's is fueled by natural resource exports (and many analysts question South Africa's status as a major emerging market). In the political sphere, China is authoritarian; Brazil, India, and South Africa are democracies; and Russia is somewhere in between.

More importantly, the geopolitical goals of the BRICS are in tension, if not mutually incompatible. China's ideal world order -- a version of Zbigniew Brzezinski's G-2, where Beijing serves as a counterbalance to Washington's power -- has little space for the aspirations of Brazil, India, or Russia to have a seat at the table in a multipolar world. Toward that end, China has consistently opposed an expansion of the U.N. Security Council to include other rising powers. Reforms to international governance that increase China's voice are welcome, but reforms that dilute its existing privileges are not.

It is this fundamental incompatibility of interests that will prevent the BRICS from acting as a cohesive economic or political force on the world stage. As van Agtmael rightly notes, "These big emerging economies will put their stamp on the 21st century." But it will be as individual nations, not as an artificial coalition.

WALTER C. LADWIG III
Assistant Professor of International Relations
University of Oxford
Oxford, England


Antoine van Agtmael replies:

As I mention in my article, the BRICS are not a cohesive geographic, economic, or political bloc. They compete more than they cooperate, and they often seek the same open seat at the table. What they have in common, however, is that they are a new generation of economic powers that can no longer be ignored or overlooked. The American Century is over and these countries are a key part of a new multipolar world, whether that world is dominated by a G-2 or a new G-7.

Of course, the United States, the European Union, and Japan are not a cohesive bloc either. They are economic competitors as much as they are dependent on each other's markets, they also span the globe, and -- since the fall of the Soviet Union -- they have lost a common national security threat. Terrorism may represent a new unifying concern for the developed world, but these countries' subtly different approaches to terrorism have been as important as their cooperation on the issue.

Grouping countries together also doesn't imply equality. China's ambitions for political dominance in Asia and global relevance are in a different league than those of the other BRICS. But, at least for the next 25 years, China will need to build common understanding with the other BRICS before it can be a significant global actor. And within each of their hemispheres, Brazil, India, and Russia seek to play their own key roles. Witness India in Afghanistan and Russia in Central Asia. The Brazilians love China as their most important export market but resent it as a competitor in Africa.

Sometimes these divergent national interests will lead to competition among the BRICS. But at other times, the BRICS will develop unified responses to global challenges or perceived threats from the developed world.