Why do Americans Work so Much More than Europeans?

Edward C. Prescott

NBER Working Paper No. 10316
Issued in February 2004
NBER Program(s):   AG   EFG   PE

Americans now work 50 percent more than do the Germans, French, and Italians. This was not the case in the early 1970s when the Western Europeans worked more than Americans. In this paper, I examine the role of taxes in accounting for the differences in labor supply across time and across countries, in particular, the effect of the marginal tax rate on labor income. The population of countries considered is that of the G-7 countries, which are the major advanced industrial countries. The surprising finding is that this marginal tax rate accounts for the predominance of the differences at points in time and the large change in relative labor supply over time with the exception of the Italian labor supply in the early 1970s. This finding has important implications for policy, in particular for making social security programs solvent.

(235 K)

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Published: Prescott, Edward C. "Why Do Americans Work So Much More Than Europeans?," FRB Minneaplis - Quarterly Review, 2004, v28(1,Jul), 2-14.

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