Another “quick” reply to Ryan Avent (Why Japan=Italy + Spain)

Ryan Avent raises this interesting comparison:

Japan and France are both highly developed countries, with a high level of technological and institutional congruence. Their levels of per capita output are nearly identical. But France raises much, much more revenue as a share of output than does Japan. Why should revenue share have, apparently, very little effect on that output relationship but a comparatively enormous effect on the relationship between outputs in western Europe and America?

I believe that a comparison of Japan and France could be used to make exactly the opposite point.  Here is some hours worked data, and Mankiw’s GDP per capita data:

US:   GDP/person:  $46,443      Taxes:  .282     Hours worked: 1777

Japan  GDP/person:   $32,817  Taxes:  .274    Hours worked: 1828

France:  GDP/person:  $33,744   Taxes:   .461    Hours worked:  1346

Let’s start with GDP/person.  The US is much richer than France and Japan.  Japan is just slightly poorer than France.  I can certainly see why Avent lumped Japan and France together.  And they have other similarities–distinctive national styles, good cuisine, fast trains, lots of nuclear power, etc.  But notice something else.  The Japanese work roughly as many hours as Americans.  More specifically, Japanese tax rates are a bit lower than US tax rates, and they work a bit longer hours.  The French tax rates are much higher than in American, and they work far fewer hours.  (And of course in the past when French tax rates weren’t higher than ours, they worked just as much as we did.)

I know I’ve already done far too much armchair theorizing, but I can’t resist one more stab at it.  Maybe Avent is wrong.  Maybe Japanese GDP/person would be nothing like French GDP/person if they had similar tax rates.  Maybe we should be grouping the US and France together, and Japan and Italy.   Indeed, maybe Japan suffers from the same problems as the Congo and Afghanistan, just to a much lesser extent.

I’m sure that by now you’ve concluded that I have gone completely nuts.  We all  know that Japan has one of the most advanced and sophisticated economies in the world.  The worker productivity is legendary.  Their educational system produces students that are much better at math than our students.  Visitors to Tokyo marvel at how everything is kept clean and tidy.  How can these stereotypes be wrong?  Tokyo doesn’t seem like Rome, Osaka doesn’t seem like Naples.  But if the data is correct, then Italians are actually significantly more productive than Japanese workers.  The Japanese work 20% more hours, but produce only 12% more output than Italy.  Japan is basically a sleepy Mediterranean country that only gets to be included with the France, Germanys and Britains of the world because they work really, really hard.   They’re a tiny bit more productive than Spaniards, and less productive than Italians.

Italy:  GDP/person:  $29,290    Taxes:  .426     Hours:   1523

Spain:  GDP/person:  $29,527    Taxes:  .373   Hours:  1745

So yes, I agree with Ryan Avent that there are many things beyond taxes that are important.  In my previous post I argued that Japan had a very inefficient economic system, which explained why it raised so little revenue, despite low taxes.  But unlike Avent, I think the differences between France and Japan perfectly illustrate my point.  France has much higher taxes, and similar productivity to the US.  The higher taxes reduce hours worked, resulting in much lower GDP/person.  Japan has similar tax rates, but much lower productivity than the US.  So it has lower GDP/person for completely different reasons.  They work even harder than we do, but are far less productive. 

I had recently read about Spain overtaking Italy in per capita GDP, which I found rather surprising.  Despite my crude stereotyping of southern Europeans, it is well known that northern Italy has a very sophisticated manufacturing sector.  So how did Spain do it?  Very simple, they worked harder.  And why did they work harder?  Could it be lower tax rates?

I won’t contest Avent’s point that Singapore and HK are unrepresentative.  I felt I had to pick them as they are the only two developed countries with much lower taxes than the US.

I still don’t agree with him on Texas.  Avent argues:

I’d first say that this is a bizarre view of urban economics, and one that entirely ignores the well documented relationship between urban density and productivity. Most of the  millions upon millions of people who live in high cost metropolitan areas—note that there are some 60 million people living in the relatively high cost metroplex between Washington and Boston—aren’t doing so because they merely want to interact with smart people and play sophisticate. They do so because it pays, because productivity and wages are higher. They have to be! If workers in such areas weren’t more productive, then they couldn’t afford to pay higher wages, and if they couldn’t afford to pay higher nominal wages, then real wages would be well below levels elsewhere, which isn’t sustainable.

I’m certainly no expert in economic geography, but doesn’t this miss the Balassa-Samuelson argument.  Isn’t the argument that only the workers producing traded goods need be more productive?  Are barbers, plumbers, tax preparers, etc, more productive in New York than in the Sunbelt, or are they paid more because the cost of living is higher, and the people who are more productive are willing to incur a higher cost of living to reside in NYC and SF?

I also wouldn’t lump the MetroPlex all together.  The NYC area is gaining people because of its amenities, and perhaps because of productivity gains flowing from agglomeration.  DC gains people for obvious reasons that have nothing to do with its economic model.  The other 60% 0f the Metroplex (including Massachusetts but excluding low tax New Hampshire) is gradually losing people to places like Texas.  We will lose another Congressional seat this census.  Right around Boston and Cambridge things are still vibrant–due to Harvard, MIT, Mass General, etc.  But the rest of the state is not that appealing from an economic perspective.

Ryan Avent also argued:

Meanwhile, who is moving to uninteresting manufacturing cities in Texas? The fastest growing metropolitan area in Texas is Austin. Austin’s industry mix is most similar to that in places like Raleigh, North Carolina (which is growing more rapidly) or Boston or San Francisco, where people continue to move.

As far as who is moving there, I don’t know their names.  But I seem to recall reading that last year the Dallas and Houston areas each gained over 140,000 nobodies, which is far more than any other city in America.  Austin gained 50,000, but because it is much smaller that represented a slightly higher percentage rate of increase than for Houston and Dallas.  But I’d say 280,000 people is pretty impressive one year in-migration for the big two.  And I didn’t mean to suggest that other places aren’t growing fast.  Most have at least slightly more pleasant climates or geography (Arizona, Denver, Florida, etc.)  I presume that North Carolina and Georgia also have good economic models.  I know that in Georgia there are sizable suburbs that have virtually no government at all, everything is contracted out.  That sounds like a libertarian paradise.  But I still say Texas has done dramatically better than the rest of the south central US, and I claim it is due to their superior economic model.  It’s now hard to believe, but New Orleans was once a rival to Houston for attracting oil companies.

Ryan Avent concludes:

The point, again, is that growth is complicated. Things like tax rate, and tax structure, and regulatory mix, and overall regulatory burden—they all have their place in the story. The kind of analysis that Mr Sumner is using here is just counterproductive to efforts to understand what is really driving disparities in economic performance.

Let me end by agreeing with Avent that it is all much more complicated than I suggested.  My original post was confusing because I shifted from one argument to a completely different argument.  The first argument was that Mankiw was actually making the supply-side side case that much higher tax rates wouldn’t raise much revenue.  I tried to make the point that it was a defensible argument (defending the indefensible.)  That apart from obvious special cases like Norway, countries that have dramatically higher tax rates than the US do not raise dramatically higher amounts of tax revenue, rather they raise equal or modestly higher levels of revenue.  I still think that is true, but will freely concede that my blog post is far too weak to convince any skeptic. I did not mean to suggest that taxes were the only factor driving economic development.  (BTW, a commenter mentioned that Mankiw used the wrong tax data, and that correct data would have actually made his case appear even stronger.) 

My second argument was for using the concept of revealed preference when comparing economic systems.  Progressives often portray Texas as a nightmarish place with savage inequalities, underfunded schools, a weak safety net, the death penalty, a high murder rate despite the death penalty, a gun in every pick-up truck, etc.  These stereotypes are probably partly true and partly false.  But the fact remains that Texas is a very appealing place for migrants.  Not just for selfish rich people escaping high tax states.  It is also appealing to working class whites, Hispanics, even for 100,000 poor black refugees from Katrina (who were welcomed by Houston with open arms—something the liberals in my hometown would never do.)  I still think this revealed preference argument is a very powerful one, but would be the first to admit that my post was far from a definitive study of the issue.  Indeed can any study be definitive?

Update:  The commenter I referred to is Mark Sadowski.  He says Mankiw used flawed Heritage Institute data.  The OECD shows French tax rates as .436, and US rates as .283.  It also occurred to me that there may be a selection bias in French productivity estimates.  Suppose hours worked falls most sharply among lower-skilled immigrants from North Africa, and also young people.  Then this bias would make French productivity look a bit higher (compared to the US and Japan) than it would be if we compared people of equally SES.

HT:  Dilip


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32 Responses to “Another “quick” reply to Ryan Avent (Why Japan=Italy + Spain)”

  1. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. April 2010 at 09:45

    I’m a big fan of productivity data so needless to say I loved this post. The contrast between the Japanese and the French illustrates perfectly the economic concept of “productivity.” The Japanese are certainly very hard working, but the French are far more efficient with their time (which leaves them more time for long boozy al fresco lunches on the Rue de la Guerre consisting of entrecote and pate de fois gras or for August vacations on the Riviera).

    Also, Thanks for finally acknowledging the flaws with the Heritage Foundation data. I was half expecting someone (you, Mankiw, or a fellow blogger) to churn the numbers with OECD data instead and show the difference.

    With respect to the selection bias, that can work both ways. With the possible exception of menial hispanic immigrant laborers, I suspect the hours worked in the US is lopsidedly distributed towards our most productive workers. Look at unemployment data by educational level for example. Frankly I think your “bias” is showing (and maybe mine as well).

  2. Gravatar of mbk mbk
    3. April 2010 at 09:56

    There are other important factors that haven’t been mentioned yet. European countries don’t just have higher taxes, they also have higher employer contributions to various para-governmental schemes (say pension plans etc). This means their labor costs are higher than they appear if you looked only at salaries, and salaries appear lower than they actually are once the employer contributions are properly factored in.

    As a result, European countries with Germany as prime example were long ago forced to move up the value chain and replace labor with the wise use of capital etc. Nowhere in Europe will you see the common sight of US supermarkets with people holding doors open or packing your purchases into bags. Labor is too expensive for that in much of Europe, not because of net salaries, but because of employers social contributions. On the bottom end of the labor market (unskilled labor) this drives up unemployment, everywhere else this drives up labor productivity.

    I have now heard private comments from a variety of people who have lived in Japan, that employee productivity really is low there. People just stay in the office for longer hours, because of social pressure. Also, of course, Japan is a country famously rich in supermarket door openers.

    Another Asian example, Singapore. According to a recent newspaper report, productivity here is now only slightly over 50% of what it is in a typical Western economy. In 2008 alone it shrank some 7% or more according to government statistics. All the while the Singapore economy has been growing, in the absolute, but population has also been growing fast, including large influxes of foreign labor for construction.

    My conclusion is that high labor costs force companies to rationalize and lead entire economies to more and more concentrate on high value added products. This eventually translates into above average productivity. And this explains the French, and the Germans.

    The French aren’t so much unwilling to work more because of high taxes. Rather, the labor laws prevent workers from working more, and this forces companies to squeeze more productivity out of them.

    In countries with abundant labor at low hourly cost companies can slack on productivity and optimize somewhere else.

  3. Gravatar of ssumner ssumner
    3. April 2010 at 10:18

    Mark, I’m either too busy or too lazy to do a complete updating. Regarding my “bias”, I recall reading sometime back that when US unemployment was 5% and French unemployment was 10% the major source of the difference was higher youth and immigrant unemployment in France. I agree that in the US the more skilled workers are more likely to be working, but I think that is even more true in France, hence I still think there is a bias here.

    Mark and mbk, There also may be another bias, although I don’t know enough about Europe to say for sure. Americans do lots of consumption during work hours (online shopping, visits to the dentist, etc.) That may occur in Japan as well, especially the after hours computer surfing. Given the French have so many days off, they may be expected to do more of their shopping and appointments outside of work time.

    mbk, I agree that high taxes and social insurance contributions push Europe toward a less labor intensive model than the US and Japan. I am pretty sure the mandatory social insurance contributions are part of the tax number for France. Does anyone know for sure?

    The Singapore number must be total factor productivity, not labor productivity. Singapore has much higher per capita output than Western Europe, surely they don’t work much more than twice the hours. Singapore also has lots of capital, so the TFP argument is plausible. Also recall that Singapore is a young country, which is still growing. It just occurred to me that the other problem may be PPP. Singapore is much cheaper than Europe, were the numbers adjusted for PPP?

    When the US or Singapore bring in low wage labor to do the less pleasant jobs, everyone gains. Domestic workers have higher living standards and the immigrants to better than in their home country. Measured per capita income may fall, but that is very deceptive.

    I think the French pattern is due to taxes, not culture. Mandatory hours explain some of the difference, but not all. Hours are also low in Holland and Germany, and I don’t think they adopted the French 4 day week.

  4. Gravatar of jean_ jean_
    3. April 2010 at 10:38

    4 day week regulation? You are exagerating a bit. Maybe 4 day and a half but not that low. The regulation is actually 35 hours per week but many people take more vacations instead and work 39 hours per week.
    It is also true that some businesses which counted some hours as work (like changing of clothes, coffee breaks) did not count them as such after the 1997 regulations.
    Another factor that has been suggested in the high french productivity is the fact that the least productive persons are excluded from work market (i.e. the dole) by the high french minimum wage and other french regulations.
    Last factor invoked (mentionned by mbk): work became shorter but to compensate, people worked tougher during the remaining time. Again, this would not be an improvement because people are more tired in the end.

    Mandatory social insurance is of course included in the figures of Greg Mankiw. Here is the repartition:
    _34% for the central government,
    _45% for the social security (including pensions and medical care),
    _21% for the local administrations.

  5. Gravatar of JeffreyY JeffreyY
    3. April 2010 at 11:19

    It’s interesting that Spain works nearly as many hours as the U.S. with taxes 9% higher. Seems like there’s something else at work besides just tax rates.

  6. Gravatar of Dr. Liberty Dr. Liberty
    3. April 2010 at 12:51

    You may have already noticed this, but Krugman has offered his opinion on this debate.

    http://krugman.blogs.nytimes.com/2010/04/03/european-leisure/

  7. Gravatar of DavidL DavidL
    3. April 2010 at 13:15

    This paper from 2005 by Bourles and Cette of the Bank of France clarifies the productivity comparisons:
    http://www.banque-france.fr/gb/publications/ner/1-133.htm.

    Here is the Abstract showing why the usual comparisons of GDP/hour are biased against the US:

    Hourly labour productivity levels in a number of European countries are thought to be very close to, or possibly even higher than the level ‘observed’ in the United States. At the same time, however, there are big differentials between hours worked and/or employment rates in these countries and in the United States. Frequent mention is also made of the theory of diminishing returns to hours worked and the employment rate. The object of the analysis proposed here is to adjust the ‘observed’ levels of hourly productivity for the effect of the differentials (with the United States) in the hours worked and/or employment rates of several categories of the population of working age in order to calculate ‘structural’ hourly productivity. The results obtained confirm the diminishing returns to hours worked and the employment rate (especially where young and elderly people are concerned). The level of ‘structural’ hourly productivity appears to be highest in the United States, suggesting that the differential between per capita GDP in the European countries and in the United States is attributable to hours worked and employment rates being at lower levels, and also to lower ‘structural’ hourly productivity.

  8. Gravatar of The Ambrosini Critique » Blog Archive » PK and the literature The Ambrosini Critique » Blog Archive » PK and the literature
    3. April 2010 at 16:20

    [...] he says that Sumner and Avant should read the literature on macro vs micro labor supply elasticities. Well, ok, he says [...]

  9. Gravatar of Lorenzo from Oz Lorenzo from Oz
    3. April 2010 at 17:31

    Texas now has more Fortune 500 corporate headquarters than any other US State. No doubt helped by the fact that their receptionists, etc find living in Texas much more affordable than living in California or New York: look at the relevant housing prices (pdf). While Texas job growth is much better than the US national trend.

    Texas is a case where population growth spurs the economy (and the economy spurs population growth) but housing prices do not shoot up because housing supply can react directly to housing demand.

    The geography helps: flat land means there are limited geographical positional goods in housing. Places like San Francisco, with hills and beaches, mean there are strong geographical positional goods in housing, which encourage land regulation to protect said positional goods. (The same thing happens in Sydney.) Once you start that game, then housing landowners generally want it to continue since it boosts the value of their houses. If cities have lots of non-citizens who are new arrivals, this aggravates the process because housing market entrants are disproportionately not part of the political process, tilting regulation further in favour of housing market incumbents and against housing market entrants. So cities with geographical positional goods (hills, beaches) and lots of foreign migrants will tend to have high housing prices.

    Cities with few geographical positional goods (flat land away from beaches) and lots of citizen-migrants (or foreign migrants well-connected to existing citizen networks–Hispanics in Texas) will tend to have lower housing prices.

    As for inequality, Washington DC has by far the highest (pdf) level of income inequality as measured by the gini coefficient of any State/Territory in the US, New York is worse than Texas which is on par with California. Alaska, New Hamsphire and Utah have the most equal income distributions.

  10. Gravatar of Mark A. Sadowski Mark A. Sadowski
    3. April 2010 at 19:03

    Delaware had a GDP per capita of $56,401 in 2008, far higher than any other state. When corrected for 2006 (most recent) Regional Purchasing Parity (RPP) it is even higher at $57,729. Since Delawareans are not noted for working long hours I take this to mean we are simply more productive.

  11. Gravatar of mbk mbk
    3. April 2010 at 22:19

    Scott, you had me hunting for the actual data. Good. Finally I found this neat US BLS paper at http://www.bls.gov/fls/flsgdp.pdf .

    Now to the BLS data, 2008:

    Labor productivity, GDP per hour worked in k$:

    US 54.9
    France 53.4
    Germany 50.7
    Singapore 25.0

    That’s indeed because of k hours worked per employed person and year:

    US 1.77
    France 1.55
    Germany 1.43
    Singapore 2.45

    (note 1 Japan is at 1.79 contrary to popular perception)
    (note 2 re: Singapore I wouldn’t be surprised if family business work were to not even fully enter into the true hours worked by young and old on evenings and weekends)
    (note 3 yes this means Singaporeans work almost twice as many hours as Europeans, and I’d assume a higher % of the population is in the workforce as well)
    (note 4 this squares well with my anecdotal perception that everyone in Singapore works all the time)

    with GDP/capita at k$

    US 46.8
    France 33.4
    Germany 35.6
    Singapore 36.7

    Note 5, on page 13 of that report, for kicks, real GDP % growth per capita 2000-2008 was

    US 1.2
    France 1.0
    Germany 1.2
    Singapore 2.5 see below my comment on TFP

    (note 6: again counterintuitively – Japan equals the US at 1.2)

    These figures are all at 2008, yes at PPP. But I don’t think the qualitative image would change dramatically if in nominal dollars. Why you think Singapore is cheap I don’t know btw. Food is indeed cheap in Singapore, consumer items are so – so (I often order Japanese electronics from the US, pay $50 shipping and 7% import duty and still end up cheaper than local store prices). I’m even surprised every time back in Europe and see the prices in mega-malls at similar levels to Singapore although the VAT is 20% compared to Singapore’s 7% GST. That’s anecdotal of course. Big ticket items such as cars and real estate are much more expensive in Singapore than in Europe. Mercer’s 2009 survey puts Singapore in the 5th worldwide spot for cost of living. See http://www.mercer.com/costofliving.

    You are right on mentioning TFP as well, I didn’t dig out the figures but Krugman had a seminal 1997 paper where he said in essence most Asian miracle nations got their growth rates from putting larger and larger numbers of people to work for longer and longer hours, plus increased capital use, and that TFP had been stagnating. Efforts have been made since to address this. Right now in Singapore there is a government awareness campaign to get people to improve their productivity.

  12. Gravatar of Sam Sam
    3. April 2010 at 22:38

    I’ve read that while Japan’s export oriented companies are world class, domestic companies are much worse. Retail, wholesale, and agriculture are very inefficient.

  13. Gravatar of Tim Worstall Tim Worstall
    4. April 2010 at 03:05

    Nooooo!

    No, no, no. You cannot go and talk about labour hours without actually measuring labour hours.

    There are two sets of labour hours. Market and household production. What we are actually interested in is the residual (after personal care is dealt with) of leisure hours.

    If we look only at market labour hours then we are ignoring household production. And this makes a huge difference. For example, the average German woman works longer (total) hours in a week than the average American woman.

    Now the point might seem a little recondite but it leads to a very important conclusion.

    Let’s make a simplifying assumption. Total working hours are the same everywhere (they ain’t, but that’s our assumption) but they are divided differently between household production and market production in different places.

    Where a greater proportion of total working hours are in market production then the people will be richer. For market production allows the division of labour and specialisation (and subsequent trade!) in a way that household production does not…..for of course if you’re trading the products of your labour you’re taking part in market working hours. Thus market labour hours are more productive and more productive labour hours lead to a higher standard of living.

    This is actually an implication of the work that Sen and Stiglitz did for Sarkozy on alternatives to GDP.

  14. Gravatar of StatsGuy StatsGuy
    4. April 2010 at 06:12

    The French data is rather interesting – imagine that France has made a collective decision not to work hard. Presumably, this means France consumes less.

    The common refrain is that over time, French economic growth will lag behind the US, and in 50 years they’ll be regretting their folly. After all, 1% compounded over 50 years… Wow. And yet, has that really happened? One could also argue that France would simply lag slightly behind the very-hard-working-US because it always gets to play catch up, and as ssumner reminds us all the time, catch up is faster than leading the way.

    Meanwhile, one still has to question whether the higher GDP in the US translates into higher quality of life (the data I linked last time suggests no) – it’s quite possible the extra competition simply means we expend more effort on rent seeking activities (lawsuits, sales and marketing, activities with negative externalities), and less on leisure (which, btw, may have beneficial health effects).

    The notion that some have repeatedly stated – that in the long run lower taxes and incentives to work harder are better for everyone – is put into doubt by the French/Japanese models (as well as rising wage disparities). I suppose we can blame japanese monetary policy, but over 20 years one would imagine “sticky” wages would have adjusted… Oh well.

  15. Gravatar of StatsGuy StatsGuy
    4. April 2010 at 06:16

    ssumner – I thought you would like this…

    http://www.boston.com/news/local/massachusetts/articles/2010/04/04/short_term_customers_boosting_health_costs/#end

  16. Gravatar of himaginary himaginary
    4. April 2010 at 06:40

    “Indeed, maybe Japan suffers from the same problems as the Congo and Afghanistan, just to a much lesser extent.”

    No, in a sense, our problems in Japan are much worse than those in those countries. Our economics academism and central bank are occupied with Chicago-trained boneheads who firmly believe that there is nothing monetary policy can do once the interest rate hits zero bound. And, alas, our interest rate hit zero bound almost fifteen years ago. Our NGDP remained almost constant since then. Added to that, we are facing shrinking population as you recently mentioned. (And on this population growth matter, Ryan seems to agree with you.)

  17. Gravatar of Mark A. Sadowski Mark A. Sadowski
    4. April 2010 at 07:25

    Several interesting comments.

    Tim Worstal,
    I’ve read the Report by the Commission on the
    Measurement of Economic Performance and Social Progress and I think it’s safe to say Stiglitz would not reach your conclusions. There are twelve recommendations by the authors of the report one of which is that the value of non-market output be given more attention. This means a more appropriate accounting of the government sector and adding the output of the household sector. If this were done the implication is that output per capita in Western Europe would be much higher than it currently is relative to the US.

    How this would affect productivity (output per hour) is a complicated question but I have some guesses.

    First of all although household production does not benefit from efficiencies of scale and specialization as seen in the market sector (especially the tradable sector) it should be evaluated in terms of the market cost of replaceing it. I would argue that this would be higher in Western Europe than in the United States, given a relatively higher market value assigned to menial labor. And potentially this could be quite high given the relatively higher value assigned to the nontradable sector for example in Western Europe than in the US.

    Secondly, I think one can argue that the French government sector for example is more efficient than the US, especially when it comes to health care. Currently we typically evaluate the output of the government sector in terms of inputs, not actual value added.

    Incidentally Eurostat has a couple of projects working on these very questions.

  18. Gravatar of mbk mbk
    4. April 2010 at 07:37

    Mark, on Delaware: for all I know this state is popular for company headquarters, something to do with tax and ease of incorporation. That may have something to do with the high per capita output on paper.

  19. Gravatar of Mark A. Sadowski Mark A. Sadowski
    4. April 2010 at 07:42

    StatsGuy’s next to last comment implicitly brings up the question of productivity growth. Although US productivity growth has been relatively good since about 1995, it’s interesting to note that the US ranks 15th out of 19 OECD members for which we have growth rates over the period 1970-2008. Whereas the US rate is 1.7%, France, Germany and the UK clocked in at 2.7%, 2.5% and 2.3% respectively. Naturally with convergence in productivity it is likely that these differences will not persist.

    Also, after glancing at the Alesina-Glaeser paper that Krugman mentioned I noticed this in the abstract with respect to European employment policies:

    “These policies do not seem to have increased employment, but they may have had a more society-wide influence on leisure patterns because of a social multiplier where the returns to leisure increase as more people are taking longer
    vacations.”

    So 6 fewer workweeks (40 vs 46) on average a year seems to lead to a valuing that time more simply for societal reasons. No wonder Europeans are perplexed by the American lifestyle. Their utility function is different than ours.

  20. Gravatar of Mark A. Sadowski Mark A. Sadowski
    4. April 2010 at 07:50

    mbk,
    You wrote:
    “Mark, on Delaware: for all I know this state is popular for company headquarters, something to do with tax and ease of incorporation. That may have something to do with the high per capita output on paper.”

    Granted, and on income per capita data Delaware ranks somewhat lower. A similar thing applies to “extraction” states such as WV, TX, OK, LA, WY and AK. One of the implicit points I wanted to raise (not with respect to anything you wrote, just in general) was the inadequacy of GDP per capita statistics.

  21. Gravatar of mbk mbk
    4. April 2010 at 08:40

    Statsguy, you said “The common refrain is that over time, French economic growth will lag behind the US, and in 50 years they’ll be regretting their folly. ” In my post above the data clearly show that per capita growth in France or Japan, in real terms, wasn’t much different from the US over the past decade. The US has positive population growth while Japan and Europe generally don’t and the usually quoted absolute GDP growth data benefit from that.

    Mark, I suspected that your comment on Delaware’s GDP per capita was tongue in cheek but I wasn’t quite sure. I completely agree that none of these data, productivity, GDP per capita etc., are very informative without a good understanding of the rest of a country’s features. This is why lists a la Freedom Indexes or GDP/capita should not be taken too seriously – they should at best indicate whether a country falls in low, mid or high range of something. For instance above I quoted a cost of living survey that puts Singapore up very high. But I’d readily admit that depending on exactly how you build the basket of goods and services you can make Singapore look much more affordable. So the conclusion can’t be deduced from hte data but rather it largely from the premises to the data collection.

    This points to a general problem in any science. Data can’t make a theory. To make sense of any data you need a good narrative to begin with. The narrative comes before the data, it will allow you to interpret them. Personal experience helps a lot in building that narrative. If you just take isolated data you can reach some pretty nonsensical conclusions. In a science such as economics where there are reams of data there is always the temptation to just debate data, and that usually just leads to data tit for tat, not to sense making.

  22. Gravatar of rob rob
    4. April 2010 at 10:03

    You said: “It is also appealing to working class whites, Hispanics, even for 100,000 poor black refugees from Katrina (who were welcomed by Houston with open arms—something the liberals in my hometown would never do.)”

    Please don’t imagine for a moment it was the conservatives in the Houston area who welcomed the Katrina refuges. The conservatives were outspoken against welcoming them and continue to complain about what a mistake it was to this day. Bill White, the mayor at the time, is no conservative. If it had been up to the city of Katy to decide, the refuges would not have been welcomed.

    The city of Houston itself has liberal demographics: take the current, openly gay mayor as an indication, standing in stark contrast to the demographics of suburbs like Katy, Sugar Land, Kingwood, The Woodlands, etc. Your analysis is integrating a tale of two cities.

  23. Gravatar of StatsGuy StatsGuy
    4. April 2010 at 10:37

    @mbk –

    I agree with you and commented partly in response to your post, I’m restating the pro-growth, anti-tax, “a rising tide lifts all boats” argument I hear constantly from conservatives and pro-business-cycle folks.

    That being: “managing the business cycle may smooth out bumps, but the long term cost is slow growth, which over time compounds to very big numbers leaving everyone worse off”

    OR

    “regulatory policies may equalize income distributions and fix market failures, but usually involve weakening the incentive to work hard, which means slightly lower growth and that compounds to big numbers of time”

    I’m struggling to see that in the data.

    3 years ago, conservatives would have argued that France and Japan have only sustained their growth/consumption by going into debt, but, alas, it seems that a lot of the growth in the US was not real, and ultimately left us with even more debt.

  24. Gravatar of TheMoneyIllusion » Social norms and macro labor supply estimates TheMoneyIllusion » Social norms and macro labor supply estimates
    4. April 2010 at 14:53

    [...] as Ambrosini suggests, just the half of that literature with which he agrees: Today he says that Sumner and Avant should read the literature on macro vs micro labor supply elasticities. Well, ok, he says [...]

  25. Gravatar of ssumner ssumner
    4. April 2010 at 17:05

    Jean, Thanks for the data on social insurance, that’s what I thought. I agree on the bias in French productivity numbers. Yes, I misspoke about the 4 day week, I remember now that it isn’t that short.

    Jeffrey, I agree that other factors play a role. People tend to work longer hours when incomes are less, for example. Still, it’s interesting that all five countries line up perfectly–higher hours associated with lower tax rates.

    Thanks Dr. Liberty, I just posted a reply.

    DavidL, Thanks, that sounds exactly right to me.

    Lorenzo, As usual, you know far more about American housing than any Americans I know. Regarding the flat land in Texas, I think land use patterns also play a role. In the midwest there are many farms of roughly a square mile, which can be easily divided up into large housing developments. There is actually a fair bit of land around Boston that is undeveloped, but you don’t have large, easily divided farms or ranches. Instead you have older towns scattered across the western suburbs of Boston, and the residents of these towns try to preserve their semi-rural characteristics. Some midwesterners who visualize a densely populated East Coast might be shocked at how thinly populated many Boston suburbs are. Look on a map at how close places like Weston and Lincolm are to Boston and the Route 128 office belt, and yet large parts of them are quite rural, with horses walking down country lanes. This is true to a lesser extent of many other suburbs.

    Mark, Delaware incomes aren’t that high, so the returns must be going to capital owned by out-of-staters.

    Thanks MBK, I used this data in my new post. Elsewhere I saw much higher PPP estimates for Singapore (I think from wikipedia) That’s why I assumed a low cost of living. I assume that it depends on the relative weight assigned to tradables vs. real estate.

    Sam, I think that’s right, I also recall reading that. It’s the only plausible explanation.

    Tim, That’s a good point. I don’t have time to do a lot of research on this issue, so had to go with the data I had. But I agree that household production is important, and your point about the gains from specialization is also correct.

    Statsguy, There is an argument that consumption has negative externalities–as it leads to envy. I suppose this goes back to Veblen, but I seem to recall that Robert Frank argued in favor of taxes on labor to overcome the negative externalities of conspicuous consumption. I.e. we consume too little labor bacause of a market failure. I’m not convinced, but it is certainly a defensible argument. But why include Japan? They work harder than we do.

    Statsguy#2, Thanks for that article. Even if the numbers are low right now, isn’t that a problem that could spread if through word of month people realize how easy it is to game the system? I think Obamacare supporters may be too quick to point to the Massachusetts system as a success. But on the other hand the penalties can be raised, if it is politically acceptable to do so.

    himaginary, Interesting that you mention Chicago boneheads. When I was young the Chicago school was the only group that didn’t worry about the zero bound. How times change.

    Mark, I discuss “social norms” in my new post. But I still think taxes must play a role in these differences, otherwise one would have expected a difference in hours worked back when the US and France had similar tax rates.

    Mark and mbk, I agree that there can be a difference between GDP and GNP. I seem to recall that in Singapore the GDP is much higher than the GNP, because of all the multinational investment there. On the other hand the Singaporeans are such high savers that perhaps that differential has now reversed.

    rob, You said;

    “Bill White, the mayor at the time, is no conservative. If it had been up to the city of Katy to decide, the refuges would not have been welcomed.”

    I know a conservative white guy who lives in Katy, Texas. He and his church did a lot of volunteer work helping Katrina refugees. In any case, I see no reason to judge a city by one group within that city. The fact is that Houston stepped up to the plate, and I am quite sure Boston would not have, even if nearby.

    You said;

    “The city of Houston itself has liberal demographics: take the current, openly gay mayor as an indication, standing in stark contrast to the demographics of suburbs like Katy, Sugar Land, Kingwood, The Woodlands, etc. Your analysis is integrating a tale of two cities.

    Let’s get beyond ‘liberal’ and ‘conservative’. Isn’t Houston pretty much free of zoning? In Boston the zoning is so strict that it is difficult to get anything built. I claimed that Texas has a good economic model, not that it was conservative. There is no reason why the Texas Democrats could not share that pro-growth orientation. Indeed I’d guess they do. And gay rights are very pro-growth.

  26. Gravatar of Tim Worstall Tim Worstall
    5. April 2010 at 00:13

    “I’ve read the Report by the Commission on the
    Measurement of Economic Performance and Social Progress and I think it’s safe to say Stiglitz would not reach your conclusions. There are twelve recommendations by the authors of the report one of which is that the value of non-market output be given more attention. This means a more appropriate accounting of the government sector and adding the output of the household sector. If this were done the implication is that output per capita in Western Europe would be much higher than it currently is relative to the US. ”

    I agree that Stiglitz wouldn’t agree with my conclusion. But it’s still implied in that paper.

    For when they attempt to put a value on that household production they say that the valuation should be (from memory) the “general undifferentiated labour rate”. In the UK, as an example, this would be the minimum wage of £5.91 an hour. But average market wages in the UK are more like £12 an hour.

    No, of course this doesn’t map over exactly but there is very much there the implication that the difference between those two valuations is the difference in value between household production and market production.

  27. Gravatar of A final reply to Scott Sumner – Economics - A final reply to Scott Sumner - Economics -
    5. April 2010 at 07:20

    [...] other topics after addressing Scott Sumner's latest replies to this discussion. Here, Mr Sumner writes:The NYC area is gaining people because of its amenities, and perhaps because of productivity gains [...]

  28. Gravatar of Melvin Ristig Melvin Ristig
    7. April 2010 at 10:07

    Hi. I just noticed that your blog appears like it has a few format issues at the very bottom of your web page. I’m not positive if everyone is getting this same bugginess when browsing your web site? I am employing a different browser than most people known as Opera, so that is what might be causing it? I just wanted to make sure you know. Thanks for posting some nice postings and I am going to try to come back with a completely different browser to check things out!

  29. Gravatar of Lorenzo from Oz Lorenzo from Oz
    8. April 2010 at 03:53

    Scott, that point about land use patterns makes sense to me. Especially semi-rurality as another positional good to be defended by regulation.

  30. Gravatar of ssumner ssumner
    8. April 2010 at 05:33

    Lorenzo, And I am pretty sure that Boston is the number one example of this in the US. As you may know the desert metropolises of the Southwest are actually more densely populated that the Northeast metro areas.

  31. Gravatar of mattmc mattmc
    17. April 2010 at 09:13

    Common Japanese office behavior is that no one gets in later than, or leaves earlier than, their boss. I don’t know how much that factors into aggregate statistics, but I think productivity is a generally useless stat.

  32. Gravatar of scott sumner scott sumner
    29. April 2010 at 05:28

    mattmc, That’s a good point.

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