NCPA - National Center for Policy Analysis


April 14, 2005

Income per person in the European region is around 30 percent less than in America and average growth rates are lower too. A new paper from the Organization of Economic Cooperation and Development (OECD) examines why.

The OECD argue that America earns more than Europe, because more of its population works:

  • In America, 70 percent of women work or looking for it; in the European Union only 61 percent were.
  • Only 45 percent of those aged 55 to 64 years are looking for work or have a job in Europe, while the comparable figure is 62 percent in America.
  • This rate sinks to 32 percent in Italy and 29 percent in Belgium.

Europe's more onerous tax system explains some of this difference. The OECD contends that fewer women work in Europe because the incomes of a second earner are taxed at a much higher rate than the main earner. For example, in Germany, spouses of people on the average production worker?s wage must pay 53 cents in tax out of the first euro they earn.

Retirement rules and benefits also discourage older Europeans from working. Giving up guaranteed benefits for an uncertain job market is difficult. Moreover, some benefits expire if you keep working. The OECD argues that this constitutes an implicit "tax" on working during your potential retirement:

  • For 55-year-olds in Germany and France, this implicit tax amounts to 50 percent of the average wage for people in that group.
  • For 60-year-old Dutch people, this loss of benefits is 90 percent of the wage.
  • Belgians 60 or older face an effective tax rate of 80 percent.

The OECD concludes that if pensions guaranteed only a lump sum of money -- not a guaranteed yearly benefit -- most Europeans would work as long as Americans.

Source: Jean-Philippe Cotis, "Economic Policy Reforms: Going for Growth," Organization of Economic Cooperation and Development, March 1, 2005.

For study:,2340,en_2649_201185_34429380_1_1_1_1,00.html


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