More Workers and Less Work

Martin Neil Baily wrote this at Brookings about work hours in northern Europe:

Brooks is correct in pointing to the negative impact of very high tax rates on work. In the Nordic economies and in Germany, the employment rate is high but people work a lot fewer hours than workers in the U.S. On average, employed workers work 1,788 hours a year in the U.S. and only 1,438 in Denmark, and even less in Germany at 1,363, according to the OECD. Of course the Europeans are choosing to work shorter hours, but that choice is made in the face of very high taxes.

I can't speak for Germany, but Baily's point about Denmark (and the Nordics more generally) is greatly overstated. In the Nordic countries, the vast majority of workers are covered by sectoral union contracts, and it is in those union contracts where work hours are established. The idea that work hours are low because of individual decisions to avoid taxes misses the fact that work hours are mostly decided collectively.

Although it's true that Nordic unions have made the choice to cut hours, it would be misleading to say "that choice is made in the face of very high taxes." Certainly taxes in the Nordic countries are much higher than the US, but it's wrong to act like these high taxes are external to union deliberations. In reality, union federations and employer associations negotiate alongside the government and strike agreements that encompass the tax system. The best recent example of this is in Finland where unions, employers, and the government have struck a new "social contract" that increases work hours by 24 hours per year in exchange for a cessation of certain government austerity policies (including taxes).

Work Hours and Employment

Nordic workers put in much fewer hours than workers in the US:

In percent terms, Finland works 6.9% fewer hours, Sweden works 8.6% fewer hours, Denmark works 18.5% fewer hours, and Norway works 20.4% fewer hours.

However, the story is somewhat different when you divide work hours by population rather than dividing work hours by the number of workers.

In 2011 (which was a bit of a down year in the US), Sweden actually worked more hours per capita than the US. Finland worked 1.5% fewer hours, Norway worked 3.7% fewer hours, and Denmark worked 8.6% fewer hours.

The reason for the difference between hours-per-worker and hours-per-capita is that the Nordic countries have much higher employment rates than the US. As a result, the Nordic countries have many more workers than the US, but also have much less work per worker, and somewhat less work overall.

Here is the employment rate of each age group in 2011:

As you can see, the US line (purple) greatly lags the other lines throughout the whole lifecycle, except among the old. If you average the Nordic employment rates and compare it to the US employment rate, it looks like this:

Every bit of this graph is quite troubling. The US greatly lags in workers during prime working years and fails to retire many of its old people, who are forced instead to work until death.

Obviously, if the US matched Nordic employment rates across the lifecycle, then it would have way more people working. Here is how many additional workers it would have if it had the employment rates of each country:

If the US had Finnish employment rates, it would have 4.4 million additional workers (3.1% more workers). If it had Norwegian employment rates, it would have 17.8 million additional workers (12.4% more workers). There are multiple reasons why the US trails the Nordic countries by so much, but probably chief among them is that its lack of leave and child care benefits keeps many women out of the labor force.