Are American Workers Victims of an Externality?

by Don Boudreaux on May 22, 2005

in The Economy

In a new NBER paper, Alberto Alesina, Edward Glaeser, and Bruce Sacerdote try to explain the differences in work time that separate Americans from Europeans. According to the May 21st Economist – reporting on this paper – "the typical American worker puts in 1,820 hours over the course of a year" while "his German and French counterparts clock up a mere 1,480 and 1,467 hours respectively."

Alesina, et al., deny that this difference is explained by different levels and rates of taxation.  They deny also that it’s a product of different tastes or cultural traits. Instead, they argue, it’s a function of (1) the fact that people complement each other at work and at play, and (2) stronger labor unions in Europe have succeeded in pressing governments there to enforce more leisure.

Number (1) makes good sense. I enjoy my leisure time more if my friends are available to share it with me; I’m also happier and more productive at work if my friends are toiling away along side of me – friends whose work effort is also an important complement to my own work effort.

And as part of a positive explanation of why Europeans work fewer hours than Americans, (2) might well be important.

What I find unconvincing about the paper is the authors’ conclusion that "national policies that enforce higher levels of relaxation can, at least in theory, increase welfare." After quoting this passage from the Alesina, et al., paper, The Economist summarizes the reason allegedly identified by the authors as support for this policy suggestion: "Perhaps Americans would also like to work less, if their family, friends, or bosses worked less also. But in a competitive economy there is no way to co-ordinate their decisions. The individual American can act with others, but not too far ahead of them."

A sure way for an economist to display cleverness is to describe theoretical reasons for the possible existence of heretofore unimagined externalities. Robert Frank believes that consumption is an externality (the only reason we spend lots of money on cars and clothes is to be at least as visibly impressive as others who spend lots of money on cars and clothes). Robert Reich believes that Wal-Mart and other big-box retailers thrive because of another sort of consumption externality (people really want quaint Main Street stores to survive, but no individual shopper is willing to forego the lower prices offered by Wal-Mart). (Note, incidentally, that the externality imagined by Reich is somewhat at odds with the externality imagined by Frank.)

Alesina, Glaeser, and Sacerdote, in the paper described above, have imagined yet another sort of externality. I concede that the existence of such an externality is possible. But as with these other externalities, merely imagining its existence and describing in a theoretically coherent way why and how it might come to be and persist is a very poor reason for believing that such externalities do, in fact, exist. Such imaginings are certainly inadequate grounds for suggesting policies to deal with these alleged externalities.

You see,it’s too easy to imagine externalities. Here’s an example, dealing with the same data on work-time differences separating the U.S. from Europe:

European governments are too beholden to labor unions – who through their disproportionate influence on governments are able unilaterally to impose their will on countless other Europeans. Europeans probably want to work much more than they do; indeed, they probably want to work as much as do Americans. But the pungent power of organized labor in Europe, combined with powerful governments, prevents individual Europeans from working as much as each would like to work. The fact that some European governments have resorted to outright prohibitions on working more than X hours per week is consistent with my hypothesis.

Note that I do not claim that my hypothesis is correct. I compose it merely to show how childishly simple it is to offer such hypotheses.

Almost anything is possible; wisdom lies in distinguishing the plausible from the possible.


One final thought: because Americans have more and better household appliances, such as automatic dishwashers and clothes dryers, than do Europeans — and because Americans have larger homes (hence more storage space) and are better able to shop at supermarkets and big-box retailers — Americans probably spend less time working at home than do Europeans.

I don’t know if Americans’ greater access to time-saving appliances, more household storage space, and larger retailers helps to explain these transatlantic differences in time spent on the (formal) job, but the possibility seems real enough.


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