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The
US
Eur
ope
GD
P p
er c
apita
0
5000
1000
0
1500
0
2000
0
2500
0
3000
0
3500
0
4000
0
1970
1975
1980
1985
1990
1995
2000
2004
US
EU
15
Dat
a fro
m O
EC
D fa
ctbo
ok20
06
Doe
s Am
eric
a ha
ve s
omet
hing
th
at E
urop
e is
mis
sing
?-A
mer
ican
exc
etio
nalis
mvs
. the
E
urop
ean
mod
el
•Tw
o fa
ctor
s th
at d
eter
min
e G
DP
per
cap
ita
-Lab
or p
rodu
ctiv
ity (o
utpu
t per
hou
r wor
ked)
Incr
ease
d in
Eur
ope
rela
tive
to th
e U
S b
etw
een
1970
and
199
5D
ecre
ased
in E
urop
e re
lativ
e to
the
US
from
199
5 an
d on
war
d
-Hou
rs o
f wor
k in
the
labo
r mar
ket
Has
bee
n de
crea
sing
sin
ce 1
970
The
futu
re re
sult
of a
com
bina
tion
of lo
w
prod
uctiv
ity a
nd le
ss h
ours
of w
ork?
•P
art 1
: Wha
t can
exp
lain
the
evol
utio
n of
ho
urs
of w
ork
from
197
0 to
199
5?-P
resc
ott(
2004
), R
oger
s (2
007)
and
Ale
sina
, Gla
eser
& S
acer
dote
(200
5)
•P
art 2
: Why
has
Eur
ope
lost
in p
rodu
ctiv
ity
rela
tive
to th
e U
S fr
om 1
995?
-Gor
don
(200
4)
Wha
t doe
s E
urop
e ha
ve to
do?
•P
art 3
: Go
Eur
ope!
-Bla
ncha
rd (2
004)
Par
t 1: P
ossi
ble
dete
rmin
ants
of
the
decr
ease
in n
umbe
r of
hour
s w
orke
d
Pro
duct
ivity
and
the
num
ber o
f hou
rs
wor
ked
1970
–19
95
From
Bla
ncha
rd 2
004,
p. 4
.
From
Ale
sina
et a
l (20
05),
p.46
.
Wor
king
for v
acat
ion
•Th
e de
crea
se in
hou
rs o
f wor
k is
due
to
cultu
ral f
acto
rs. E
urop
eans
like
vac
atio
n an
d A
mer
ican
s ar
e w
orko
holic
s.
•La
bor m
arke
t pol
icie
s th
at d
ecre
ase
the
ince
ntiv
es to
wor
k.-T
axes
-Uni
on p
olic
ies
TAX
ES
•In
com
e ta
x +
payr
oll t
ax +
con
sum
ptio
n ta
x =
effe
ctiv
e m
argi
nal t
ax ra
te.
•In
divi
dual
cho
oses
bet
wee
n w
orki
ng in
the
labo
r mar
ket
and
leis
ure
(enc
ompa
sses
non
-mar
ket s
ecto
r).
•Th
e ta
x cr
eate
s a
wed
ge b
etw
een
inco
me
from
labo
r m
arke
t wor
k an
d in
com
e fro
m th
e no
n-la
bor m
arke
t se
ctor
-di
stor
tion
•Fr
om 1
970
to 2
000
the
tax
rate
in E
urop
e in
crea
sed
by
10-1
5% in
Eur
ope
com
pare
d to
abo
ut 8
% in
the
US
(B
lanc
hard
200
4 p.
9).
Uni
on P
olic
ies
•H
ighe
rwag
e•
Neg
otia
tem
ore
vaca
tion
and/
or s
horte
rw
ork
wee
k.•
Neg
otia
tion
of g
ener
ous
pens
ion
sche
mes
.•
Neg
otia
tion
of u
nem
ploy
men
tco
mpe
nsat
ion.
Pre
scot
t (20
04) a
nd E
urop
ean
taxe
s
•Lo
oks
at th
e la
bor s
uppl
ies
in th
e G
7 ov
er
time.
•Th
e ta
x ra
te a
ccou
nts
for t
he w
hole
di
ffere
nce
in h
ours
of w
ork.
•Jo
lly g
ood.
In o
rder
to c
atch
up
Eur
ope
just
hav
e to
low
er th
e ta
xes.
Rog
ers
(200
7) –
It is
the
serv
ice
sect
or!
•A
n al
tern
ativ
e vi
ew o
n th
e im
porta
nce
of h
igh
taxe
s.•
Kuz
nets
: Agr
icul
ture
M
anuf
actu
re a
nd s
ervi
ces
Ser
vice
s•
As
Eur
ope
catc
hes
up w
ith A
mer
ica,
the
empl
oym
ent
rate
acr
oss
sect
ors
expe
cted
to b
e ro
ughl
y th
e sa
me.
•In
200
0, th
e em
ploy
men
t in
the
Eur
opea
n se
rvic
e se
ctor
w
as 7
0% o
f tha
t in
the
US
.•
In o
rder
to u
nder
stan
d th
e di
ffere
nce
in h
ours
of w
ork
one
mus
t und
erst
and
why
Eur
ope
has
not d
evel
oped
a
mar
ket s
ervi
ce s
ecto
r sim
ilar t
o th
at o
f the
US
.
Stru
ctur
altra
nsfo
rmat
ion
com
pare
d
The
reas
on to
Eur
ope’
s no
n-ex
iste
nt m
arke
t se
rvic
e se
ctor
•E
urop
e ra
ise
taxe
s at
the
sam
e tim
e as
the
deve
lopm
ent p
roce
ss a
nd e
ncou
rage
wor
k ou
tsid
e th
e la
bor m
arke
t.•
Act
iviti
es in
mar
ket s
ervi
ce s
ecto
r hav
e go
od
non-
mar
ket s
ubst
itute
s as
chi
ld c
are,
coo
king
, cl
eani
ng, h
ouse
repa
irs –
high
ela
stic
ity.
•If
the
US
wer
e to
ado
pt th
e sa
me
tax
rate
s as
E
urop
e, th
e tim
e al
loca
tion
acro
ss s
ecto
r wou
ld
be s
imila
r.S
o E
urop
e ca
n lo
wer
taxe
s in
the
serv
ice
sect
or.
In o
rder
to in
crea
se th
e ho
urs
wor
ked
in E
urop
e, lo
wer
the
taxe
s.
…is
it th
at s
impl
e?
Bla
ncha
rd’s
con
tribu
tion
to th
e di
scus
sion
•Q
uest
ions
the
assu
mpt
ions
abo
ut u
tility
an
d el
astic
ity
•N
o cl
ear e
vide
nce
of a
rela
tion
betw
een
tax
rate
and
hou
rs o
f wor
k in
Eur
ope
•P
refe
renc
es: W
orke
rs c
hose
to in
crea
se
leis
ure
as th
e in
com
e in
crea
sed
Ale
sina
, Gla
eser
, and
Sac
erdo
te-P
resc
ott’s
ela
stic
ity!
•Th
e el
astic
ity is
too
high
•W
hy u
se m
icro
/mac
ro e
last
iciti
es?
-Dire
ct e
ffect
s-T
rans
fers
in
com
e ef
fect
-Sub
stitu
tion
poss
ibili
ties
–m
arke
t sec
tor a
nd n
on-
mar
ket s
ecto
r.
•N
o ev
iden
ce th
at s
uppo
rts m
acro
el
astic
ities
of t
hat m
agni
tude
Ale
sina
, Gla
eser
, and
Sac
erdo
te-V
acat
ion
cont
amin
atio
n
•N
o su
ch th
ing
as a
”cul
tura
l”ex
plan
atio
n-I
n th
e 60
s th
e ho
urs
per e
mpl
oyee
wer
e ab
out t
he s
ame
in E
urop
ean
d in
the
US
.•
How
to c
ombi
ne h
igh
elas
ticity
and
cul
ture
-Pos
itive
com
plem
enta
ries
in p
rodu
ctio
n, c
onsu
mpt
ion,
and
leis
ure
soci
al m
ultip
lier
soci
al m
ultip
lier
•In
crea
se in
tax
decl
inin
g ho
urs
of w
ork
rein
forc
emen
t by
the
soci
al m
ultip
lier
soci
al m
ultip
lier
•B
ut a
soc
ial m
ultip
lier
soci
al m
ultip
liere
ffect
can
not
exp
lain
the
who
le d
iffer
ence
.•
So
wha
t doe
s E
urop
e ha
ve th
at A
mer
ica
is
mis
sing
acc
ordi
ng to
them
?
Ale
sina
, Gla
eser
, and
Sac
erdo
te-T
hey
have
unio
ns!
•O
mitt
ed v
aria
bles
: Uni
oniz
atio
n an
d la
bor
mar
ket r
egul
atio
ns•
In E
urop
e, u
nion
s pl
ay a
n im
porta
nt ro
le in
:-N
egot
iatio
n of
retir
emen
t sch
emes
-Neg
otia
tions
of u
nem
ploy
men
t com
pens
atio
n-S
olid
arity
wag
e po
licy
•Th
e ef
fect
of t
he ta
x ra
te m
ight
be
over
estim
ated
Ale
sina
, Gla
eser
, and
Sac
erdo
te-W
ork
less
–W
ork
all!
•Th
e im
porta
nce
of th
e un
ions
incr
ease
d w
ith th
e st
ruct
ural
sho
cks
of 1
970-
1980
(or r
elat
ed to
the
lefti
st s
urge
in th
e la
te 6
0s).
•Lo
wer
pro
duct
ivity
•Fa
ced
with
risk
of u
nem
ploy
men
t the
y ne
gotia
ted
a de
crea
se in
wor
k ho
urs.
•Th
e pr
imar
y go
al: M
aint
ain
thei
r mem
bers
hip
“Wor
k al
l, w
ork
less
”
Ale
sina
, Gla
eser
, and
Sac
erdo
te-It
is e
mpi
rical
!
•Th
e im
pact
of t
axes
dis
appe
ars
whe
n th
ey c
ontro
l for
un
ioni
zatio
n an
d re
gula
tion.
•Fr
om th
e U
S: T
he im
pact
of u
nion
sta
tus
on v
acat
ion
and
hour
s w
orke
d se
ems
to b
e as
larg
e as
the
impa
ct o
f ta
x ra
tes.
•Le
gally
man
date
d ho
liday
s ca
n ex
plai
n 80
% o
f the
di
ffere
nce
in h
ours
wor
ked
and
30%
of t
he d
iffer
ence
in
tota
l lab
or s
uppl
y.•
Con
clus
ion:
Uni
oniz
atio
n an
d la
bor m
arke
t reg
ulat
ion
mig
ht b
e th
e do
min
ant f
acto
rs w
hen
expl
aini
ng th
e di
ffere
nce.
Ale
sina
, Gla
eser
, and
Sac
erdo
te-W
ork
less
–fe
el g
ood!
•S
ubop
timal
ity o
r the
sol
utio
n of
a c
oord
inat
ion
prob
lem
?
•Th
e im
porta
nce
of th
e so
cial
mul
tiplie
rso
cial
mul
tiplie
r-- P
eopl
e ta
king
long
er v
acat
ions
see
ms
to b
e ha
ppie
rP
eopl
e ta
king
long
er v
acat
ions
see
ms
to b
e ha
ppie
r
•…
does
Eur
ope
have
som
ethi
ng th
at A
mer
ica
wis
hed
it ha
d?
Hal
ftim
e co
ntem
plat
ion
Are
you
con
vinc
edby
thes
ear
gum
ents
?
Par
t 2: F
acto
rs b
ehin
d E
urop
e’s
lagg
ing
in p
rodu
ctiv
ity
-Am
eric
an e
xcep
tiona
lism
afte
r 199
5
Bla
ncha
rd 2
004,
p. 1
1
Pot
entia
l exp
lana
tions
•P
rodu
ctiv
ity s
low
dow
n in
man
ufac
turin
g-T
he ra
te h
a be
en d
eclin
ing
but i
s st
ill a
t a h
ighe
r lev
el
than
that
of t
he U
S.
•E
urop
e m
isse
d th
e IT
-revo
lutio
n-T
he s
hare
of t
he IT
pro
duci
ng s
ecto
r is
smal
ler i
n E
urop
e th
an in
the
US
, but
ther
e ar
e la
rge
diffe
renc
es
betw
een
coun
tries
The
larg
est d
iffer
ence
is fo
und
in th
e IT
-us
ing
serv
ice
sect
or:
-Ret
ail t
rade
, who
lesa
le tr
ade,
and
sec
uriti
es
tradi
ng.
-Ret
ail a
ccou
nts
for a
bout
50
perc
ent o
f the
pr
oduc
tivity
incr
ease
.
Why
is A
mer
ica
mor
e su
cces
sful
in th
is
sect
or?
Gor
don:
Eur
opea
n cu
ltura
lattr
ibut
es
•R
egul
ator
y ba
rrie
rs a
nd la
nd-u
se re
gula
tion
in
Eur
ope
inhi
bit d
evel
opm
ent o
f ”bi
g bo
x”re
taili
ng
stor
es (W
al-M
art).
ALSO
•E
urop
e’s
corp
orat
ist s
truct
ures
that
pro
tect
in
cum
bent
indu
strie
s an
d in
hibi
t new
ent
ry.
•C
ultu
ral f
acto
rs th
at in
hibi
t dev
elop
men
t of
ambi
tion
and
inde
pend
ence
am
ong
teen
ager
s an
d yo
ung
adul
ts.
Am
eric
an e
xcep
tiona
lism
-U
S re
tailin
g
•A
mer
ica
-Pro
mot
e di
sper
sed
low
-den
sity
urb
an a
reas
w
ithou
t pub
lic tr
ansp
orta
tion
-Bui
ldin
g hi
ghw
ays
•E
urop
e:-R
egul
ator
y ba
rrie
rs-P
rote
ctio
n of
gre
en-a
reas
-Diff
eren
t pub
lic p
olic
es re
leva
nt fo
r m
etro
polit
an g
row
th.
The
Eur
opea
n M
odel
: Cor
pora
tism
and
sp
oile
d yo
uth
•E
cono
mic
inst
itutio
ns th
at s
uppr
ess
inno
vatio
n an
d co
mpe
titio
n-L
icen
ses
and
perm
issi
ons
to s
et u
p ne
w p
lant
s-N
eed
to c
onsu
lt w
ith w
orke
rs b
efor
e ch
ange
s-E
mpl
oym
ent p
rote
ctio
n
•S
poile
d Y
outh
s-P
aid
tuiti
on-N
o ne
ed to
wor
k -C
ultu
re o
f dep
ende
ncy
Ince
ntiv
es fo
r Inn
ovat
ion
•D
evel
opm
ent o
f IT,
pha
rmac
eutic
s an
d bi
otec
h m
ore
succ
essf
ul in
Am
eric
a-I
nter
play
am
ong
rese
arch
uni
vers
ities
, gov
ernm
ent
rese
arch
gra
nts,
and
priv
ate
indu
stry
-Ear
ly d
evel
opm
ent o
f gra
d sc
hool
in b
usin
ess
-Gov
ernm
ent r
esea
rch
supp
ort f
avor
s yo
ung,
act
ive
rese
arch
ers
and
not n
on-p
rodu
cing
pro
fess
ors
-Enc
oura
ged
imm
igra
tion
of h
igh
skill
ed p
erso
ns
Can
Eur
ope
catc
h up
aga
in?
•U
nles
s th
e E
urop
ean
cultu
ral a
ttitu
des
chan
ge q
uite
fast
it m
ight
be
trick
y.
¾pa
rt co
ntem
plat
ion
-Wha
tdoe
sE
urop
e ha
veto
do?
Pos
sibl
e su
gges
tions
:•
Low
er ta
xes
•Lo
wer
taxe
s in
the
serv
ice
sect
or•
Pro
hibi
t uni
on a
ctiv
ity•
Der
egul
ate
mar
kets
•Fu
lly a
dopt
the
Am
eric
an c
ultu
re w
ith
high
way
s, W
al-M
art,
and
no s
ubsi
dies
of
colla
ge e
duca
tion
Sac
rific
es fo
r hig
her G
DP
per
cap
ita
•V
acat
ions
•Fu
n w
ork
in th
e ho
me
sect
or
•S
ocia
l sec
urity
and
mod
erat
ely
rich
CE
Os
•Li
ve c
lose
to n
eigh
bors
in e
very
asp
ect
•B
us, s
ubw
ays,
and
trai
ns•
Gre
en a
reas
•Th
e re
lativ
ely
unpo
llute
d ai
rTh
e w
hole
Eur
opea
n m
odel
?
But
can
you
com
pare
Eur
ope
to th
e U
S?
Par
t 3: G
o E
urop
e!
Bla
ncha
rd a
nd th
e E
urop
ean
mod
el
•Th
e pr
oduc
tivity
gro
wth
bef
ore
may
hav
e be
en a
ca
tchi
ng u
p ef
fect
.•
Eur
ope
was
abl
e to
pro
tect
thei
r ind
ustri
es (r
egul
ated
m
arke
ts),
whi
ch a
llow
ed fo
r the
gov
ernm
ent t
o ex
tract
re
nts
and
purs
ue th
e E
urop
ean
mod
el w
ith e
mph
asis
on
the
wel
fare
sta
te.
•C
omm
on a
rgum
ent:
Now
Eur
ope
mus
t be
inno
vativ
e an
d ca
n no
t esc
ape
fore
ign
com
petit
ion.
The
Eur
opea
n m
odel
can
no
long
er p
ersi
st.
•Th
e re
form
s in
the
labo
r mar
ket i
s a
sign
of c
hang
e.
Bla
ncha
rd a
nd d
ereg
ulat
ion
•B
E: B
arrie
rs to
ent
repr
eneu
rshi
p•
PO
: Pub
lic o
wne
rshi
p•
Reg
ulat
ion
has
decr
ease
d in
Eur
ope
•E
urop
e is
stil
l mor
e re
gula
ted
than
the
US
•Th
ere
is g
reat
het
erog
enei
ty b
etw
een
coun
tries
Bla
ncha
rd (2
004)
p. 1
9.
Bla
ncha
rd a
nd d
ereg
ulat
ion
•P
ositi
ve o
utco
mes
can
be
seen
in ro
ad
freig
ht, a
utom
otiv
es…
•Th
ere
seem
to b
e a
rela
tions
hip
betw
een
dere
gula
tion,
the
degr
ee o
f com
petit
ion,
an
d th
e le
vel o
f pro
duct
ivity
.
Der
egul
atio
n of
goo
ds a
nd la
bor m
arke
ts
•D
ereg
ulat
ion
of g
oods
mar
ket
Incr
ease
in
com
petit
ion
low
er p
rices
lo
wer
mar
kup
•D
ereg
ulat
ion
of th
e fin
anci
al m
arke
t (p
rivat
izat
ion,
incr
ease
d ca
pita
l mob
ility
) in
crea
sed
elas
ticity
of c
apita
l to
the
rate
of r
etur
n•
Impl
icat
ions
for t
he la
bor m
arke
t-U
nion
s
-Ins
titut
ions
Bla
ncha
rd (2
004)
, p. 2
8.
Uni
ons
-Sm
alle
r ren
ts
smal
ler b
enef
it of
join
ing
a un
ion
decr
ease
in m
embe
rshi
p de
crea
se
in p
ower
-The
mem
bers
hip
has
decl
ined
in c
ontin
enta
l E
urop
e
Inst
itutio
ns•
Ano
ther
way
to a
ffect
the
dist
ribut
ion
betw
een
firm
s an
d w
orke
rs-W
hen
rent
s sm
alle
r, th
e di
stor
ting
inst
rum
ents
to
extra
ct re
nts
less
attr
activ
e•
Pro
vide
soc
ial i
nsur
ance
, a tr
ade
off b
etw
een
econ
omic
effi
cien
cy a
nd s
ocia
l ins
uran
ce-I
f cou
ntrie
s fa
r fro
m e
ffici
ency
fron
tier f
rom
the
begi
nnin
g, d
ereg
ulat
ion
mig
ht p
ress
ure
them
to m
ove
clos
er, p
rovi
ding
abo
ut th
e sa
me
soci
al in
sura
nce
at
low
er e
ffici
ency
cos
ts.
Sig
nsof
cha
nge
•Th
e rh
etor
ic o
f uni
ons.
-Fro
m ”c
lass
stru
ggle
”to
”par
tner
ship
bet
wee
n la
bor a
nd
capi
tal”.
-Uni
ons
have
bec
ome
”wea
ker a
nd s
mar
ter”
.•
Une
mpl
oym
ent i
nsur
ance
sys
tem
s-R
educ
ed re
plac
emen
t rat
es, a
ctiv
e re
empl
oym
ent
polic
ies
•A
ttem
pts
to in
crea
se fl
exib
ility
-Eas
ier t
o hi
re a
nd fi
re•
Neg
ativ
e in
com
e ta
x in
stea
d of
min
imum
wag
e to
ach
ieve
hig
her i
ncom
e fo
r low
-ski
lled
wor
kers
.
A p
olic
y ex
ampl
e: F
lexi
curit
y
It is
pos
sibl
e to
hav
e bo
th fl
exib
ility
and
sec
urity
in
orde
r to
achi
eve
econ
omic
per
form
ance
.
The
Dan
ish
’Gol
den
Tria
ngle
’:-
Low
er d
egre
e of
em
ploy
men
t pro
tect
ion
legi
slat
ion
(eas
ier t
o hi
re a
nd fi
re)
-G
ener
al p
rovi
sion
for u
nem
ploy
ed p
eopl
e-
Toge
ther
with
act
ive
labo
r mar
ket p
olic
ies
(pre
ssur
e an
d ed
ucat
ion)
No
stro
ng e
vide
nce
of th
e ef
fect
s, b
ut:
•H
igh
labo
r mob
ility
-E
asie
rto
quit
a jo
ban
d fin
da
new
one
•A
redu
ctio
nof
une
mpl
oym
entb
y ar
ound
50 p
erce
ntsi
nce
1993
(Fle
xicu
rity
from
19
98)
Doe
s th
e U
S h
ave
som
ethi
ng
that
Eur
ope
is m
issi
ng?
I don
’t th
ink
so
Ref
eren
ces
•A
lesi
na, A
., G
laes
er, E
., S
acer
dote
, B. (
2005
). ’W
ork
and
Leis
ure
in
the
U.S
. and
Eur
opé:
Why
So
Diff
eren
t?’,
NB
ER
Wor
king
Pap
er N
o.
1127
8, A
pril
2005
.•
Bla
ncha
rd, O
livie
r. (2
004)
‘The
Eco
nom
ic F
utur
e of
Eur
ope’
, NB
ER
W
orki
ng P
aper
, No.
103
10, M
arch
200
4.•
Gor
don,
R J
. (20
04) ‘
Why
Was
Eur
ope
Left
At t
he S
tatio
n W
hen
Am
eric
a’s
Pro
duct
ivity
Loc
omot
ive
Dep
arte
d’, N
BE
R W
orki
ng
Pap
er, N
o. 1
0661
, Aug
ust 2
004.
•P
resc
ott,
E C
. (20
04).
*Why
Do
Am
eric
ans
Wor
k S
o M
uch
Mor
e Th
an E
urop
eans
?’, F
eder
al R
eser
ve B
ank
of M
inne
apol
is Q
uarte
rly
Rev
iew
, vol
.28,
No.
1 Ju
ly 2
004,
pp.
2-13
.•
Rog
erso
n, R
icha
rd. (
2007
). ’S
truct
ural
Tran
sfor
mat
ion
and
the
Det
erio
ratio
nof
Eur
opea
n La
bor M
arke
t Out
com
es’,
NB
ER
Wor
king
Pap
erN
o. 1
2889
, Feb
ruar
y20
07.
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