HIGHER TAXES RESPONSIBLE FOR EUROPE'S LOWER PRODUCTIVITY
July 21, 2010
In 2004, the year he won the Nobel Prize, Edward Prescott, an economist at the Federal Reserve Bank of Minneapolis, published a paper titled "Why Do Americans Work So Much More than Europeans?" The data were stunning, says James K. Glassman, former undersecretary of state for public diplomacy and public affairs and the current executive director of the George W. Bush Institute in Dallas.
Prescott found that the average output per adult between 1993 and 1996 in the United States was 75 percent greater than in Italy, 49 percent greater than in the United Kingdom, and 35 percent greater than in France and Germany. "Most of the differences in output," he wrote, were "accounted for by differences in hours worked per person and not by differences in productivity."
In other words, Americans don't work any more efficiently than Germans; we just work a lot more. Not only do we work longer hours each week and take fewer vacations; we also work more years of our lives, and a higher proportion of our adults are working:
- In 2007, for example, American men, on average, retired at age 64.6, while Frenchmen retired at just 58.7 and Austrians at 58.9.
- That same year, 72 percent of Americans, aged 15 to 64, were in the workforce, compared with 59 percent of Italians and 64 percent of French.
The result is that Americans produce and earn considerably more than Europeans:
- In the United States we make $47,000, compared with $36,000 in Germany and the United Kingdom, and $34,000 in France.
- In fact, as the Michigan State economist Mark Perry points out on his blog, Carpe Diem, citizens of America's poorest state, Mississippi, have a higher GDP per capita than Italians, and Alabamans surpass Germans, French and Belgians.
Prescott fingered the culprit: high taxes. Taxation rates on the next euro of income became so high that people were discouraged from working -- especially with the enticements of early retirement.
But why are taxes so high in Europe? Certainly not to maintain a strong defense but rather to pour money into a welfare state that provides lavish support to retirees, perennial students, and others who aren't working. In other words, Europeans have chosen to have workers support nonworkers in their leisure, explains Glassman.
Source: James K. Glassman, "Higher Taxes Responsible For Europe's Lower Productivity," Commentary Magazine, July/August 2010.
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