Sunday, July 04, 2004

Conservatives in the blogosphere have made much of the disparity in GDP per capita between US and Europe: measured at purchasing power parity, GDP per capita is 40% higher in the United States. See this Instapundit thread on whether Sweden is poorer than Mississippi to see how this fact is used in the blogsophere.

However, when you consider GDP per capita per worker hour, the difference goes away and the advantage of the US is about 5%. This means that the disparity in GDP per capita is not necessarily due to inherent weaknesses in the European model, but rather simply because the average European works less than his American counterpart.

Do Europeans choose to work less or are they constrained to do so? The data seems to support the former. The difference in hours per worker is not primarily due to higher European unemployment or to a higher proportion of part time workers; rather, most of the difference lies in the hours per full time worker. Furthermore, the decrease in European hours worked over the past 30 years has happenned even in countries with comparatively low tax rates, such as Ireland. It stands to reason that while higher taxes in Europe do have some negative effect on hours worked, the lions share of the difference is due to personal preferences.

Claiming that Sweden is poorer than Mississipi based on GDP per capita data misses the point, given that Swedes, as other Europeans, choose to substitute leisure for wealth relative to Americans.

(Link via Mahalanobis)


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