Understanding Why Some Countries Work So Much Harder …

Transcript Understanding Why Some Countries Work So Much Harder …

Understanding Why Some Countries Work So Much Harder than Others Stephen Nickell Nuffield College, Oxford IZA Conference Bonn, December 2008.

Broad Picture

• Consider the total labour input (market work) per person of working age. The big three countries of Continental Europe (France, Germany, Italy) have the lowest labour input. Scandinavia (excluding Norway) is around 27% higher. The Anglo-Saxon countries plus Japan (excluding Ireland) are around 39% higher.

• Around 40% of the differential between the top group and the bottom group is accounted for by differences in the employment rate, the remainder being contributed by differences in hours worked per year by the employed.

• The Scandinavian group has the highest employment rate.

Broad Picture Continued

• Most of the variation in hours worked per year by the employed is accounted for by differences in weeks worked per year, not by hours worked per week.

• Using time-use data, the cross-country correlation between market work and total work is 0.55. (Note, time use data does not, typically, account adequately for vacations/holidays or short-term sickness).

• Most of the variation in weeks per year is generated by differences in vacation/holidays or absences due to sickness or maternity leave.

Table 1 Hours per Working Age Person Per Week and its Components (2002)

Austria Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland UK Australia Canada Japan NZ US 1 Weekly hours worked per person of working age (col. 2 x col. 3 ÷ 5200) 20.5 17.8 21.5 22.5 17.5 18.2 20.8 17.1 19.1 19.9 22.2 20.8 22.8 22.9 23.6 24.3 23.8 23.6 25.3 24.9 2 Employment/ Population of working age (%) 68.2 59.7 76.4 67.7 62.2 65.3 65.0 55.6 74.5 77.1 68.1 59.5 74.9 78.9 72.7 69.2 71.5 68.2 72.4 71.9 3 Annual hours worked per worker 1567 1547 1462 1727 1459 1443 1666 1599 1338 1342 1697 1813 1581 1510 1692 1824 1731 1798 1816 1800

Sources: Employment/Population: OECD Employment Outlook, 2004, Table B. Annual Hours: OECD Employment Outlook, 2004, Table F. Some alternatives to these data are presented in the Appendix.

The hours data refer to all workers, full-time and part-time, and to full year equivalents (ie. working a full year).

Table 2 Comparison with Labor Inputs Derived from Time Use Studies (1992-2003)

Average hours per week per capita Time Use Date (Age 20-70)

Belgium Denmark Finland France Germany Italy Netherlands Norway Spain Sweden UK Australia Canada Japan US

Source:

Market Work

(1) 21.9 31.8 25.0 23.6 23.1 24.1 22.1 27.9 22.1 28.1 26.5 25.9 29.8 35.5 29.9

Home Work

(2) 25.1 21.8 21.9 24.6 28.4 27.7 24.0 21.9 23.6 24.7 22.8 27.1 24.9 16.4 25.4

All Work

(3) 47.0 53.6 46.9 48.2 51.5 51.9 46.1 48.9 45.7 52.8 49.3 53.0 54.7 51.9 55.3

Leisure

(4) 42.4 39.8 46.4 35.2 39.1 46.8 46.4 48.0 41.8 41.8 42.8 43.1 38.3 43.5 39.4 Burda et al. (2006), Tables 1.1, 1.3, 1.4. Correlations: Most of the time use data refer to the period 1998-2003. Australia refers to 1992. (5) and (1): 0.6616, significant at the 1% level. (5) and (2): -0.3126 (5) and (3): 0.5469, significant at the 5% level. (5) and (4): -0.0885

Table 1 (Working Age) Market Work

(5) 17.8 21.5 22.5 17.5 18.2 17.1 19.1 19.8 20.8 22.8 23.6 24.3 24.4 23.6 24.9

Austria Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland UK US

Annual Hours actually Worked and its Components a

1 Annual hours actually worked by workers 1567 1547 1462 1726 1459 1443 1666 1599 1338 1342 1697 1813 1581 1510 1692 1800 2 Average weekly hours by those in work 38.4 36.3 36.3 38.8 36.2 36.5 36.3 37.4 31.8 37.3 40.4 38.8 38.1 37.5 38.2 39.4 3 Weeks worked per year by those in work (1 ÷ 2) 40.8 42.6 40.3 44.5 40.3 39.5 45.9 42.8 42.1 36.0 42.0 46.7 41.5 40.3 44.3 45.7 4 holidays 5 Components of weeks worked Vacations and Other b absences (52-3.-4.) 7.2 7.1 7.4 7.0 7.0 7.8 5.7 7.9 7.5 6.5 7.3 7.0 6.8 6.0 6.5 3.9 4.0 2.3 4.3 0.5 4.7 4.7 0.4 1.3 2.4 9.5 2.7 (1.7) 3.7 5.7 1.2 2.4 a. The data refer to all workers, both full-time and part-time, and to full year equivalents. So, hours per year refers to those working a full year. Numbers in parenthesis are negative. b. Includes absences due to illness, maternity, labour disputes, training and other reasons. Sources: Column 1. Column 2. Column 4. OECD Employment Outlook, 2004, Table F. OECD Employment Outlook, 2004, Table 1.5. For US, Alesina et al. (2005), Table 1. OECD Employment Outlook, 2004, Table 1.5. For US, Alesina et al. (2005), Tab

Some History

• Back in the early 1970s, the Anglo-Saxon Countries, the Scandinavian countries and two of the Big Three (France, Germany) all had roughly the same level of average labour inpt per capita at around 24 hours p.w. By contrast, total labour input in Italy and the Netherlands was around 20% lower.

• Since then, labour input in the Anglo-Saxon countries have barely changed, in the Scandinavian countries it has fallen a little (except Norway) and in France and Germany, the fall has been substantial.

Austria Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway 1964 28.8 Total Labour Input Weekly hours worked per person of working age 1970 1973 1983 1990 2004 % change from 1983 (1973) 19.8 26.8 25.8 17.8 22.0 25.7 17.7 21.1 25.2 17.7 21.3 22.4 -0.6 -1.5 -12.8 (-13.2) 24.4 25.2 18.7 23.4 24.7 18.9 18.7 22.3 19.4 20.2 19.1 17.4 15.3 21.1 18.8 19.3 19.1 16.8 16.8 20.1 17.4 18.0 20.7 17.5 18.4 19.8 -10.3 (-25.6) -10.9 (-27.1) 8.4 0.6 (-7.4) 20.3 (-1.6) -6.2 (11.2) Portugal Spain Sweden Switzerland UK Australia 25.2 24.1 23.2 26.4 17.3 23.1 21.2 22.3 24.0 18.2 24.9 24.6 24.4 22.1 21.4 22.4 23.2 23.3 24.3 Canada Japan NZ 22.6 30.0 21.4 28.6 23.8 26.8 23.5 24.4 23.6 25.8 US 24.0 23.8 24.1 23.6 25.8 25.0 Source: Based on Tables 3 and 4. (Annual hours ÷ 52) x employment rate. 23.7 -3.0 (-3.4) 9.9 (-11.7) 9.0 14.0 (8.0) -17.5 (-21.3) 5.9 (3.7)

History: Employment Rates

• In the early 1970s, the pattern of employment rates is much the same as today. Scandinavia, plus Switzerland, was and is top. Spain, Italy, Belgium were, and still are, bottom.

• The Netherlands has seen a very big increase.

• In every country the employment rate of women has risen, by anything from 10 to 35 pps. The employment rates of men have generally fallen.

Austria Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland UK Australia Canada Japan NZ US 1964

72.2 (61.4) 70.8 (53.0) 62.1 (40.6)

Total Employment Rate (Women in brackets) % 1970

70.4 (61.5) 66.6 (46.4) 66.9 (46.3) 52.0 (27.4) 72.3 (58.3) 67.9 (52.8) 64.0 (46.3)

1973

64.4 (47.7) 60.7 (39.9) 75.2 (61.2) 70.0 (62.3) 65.9 (47.9) 68.7 (49.7) 59.9 (32.8) 55.1 (29.9) 56.3 (28.6) 67.7 (49.3) 62.4 (30.5) 61.0 (32.5) 73.6 (60.8) 77.7 (54.1) 71.4 (52.7) 68.5 (46.4) 63.1 (44.1) 70.8 (53.4) 64.4 (39.1) 65.1 (48.0)

1983

62.9 (47.1) 54.6 (47.1) 71.1 (65.0) 73.2 (69.0) 60.8 (48.3) 62.2 (47.8) 53.9 (33.6) 54.5 (34.2) 52.1 (34.7) 73.9 (63.0) 65.8 (49.8) 47.0 (26.4) 78.5 (73.9) 73.8 (54.7) 64.3 (52.6) 62.5 (47.0) 63.8 (53.1) 71.1 (55.7) 61.6 (42.8) 66.2 (56.1)

1990

54.4 (40.8) 75.4 (70.6) 74.1 (71.5) 60.8 (50.9) 64.1 (52.2) 52.1 (36.6) 52.6 (36.2) 61.1 (46.7) 73.0 (67.2) 67.4 (55.4) 51.8 (31.8) 83.1 (81.0) 78.2 (66.4) 72.5 (62.8) 67.9 (57.1) 70.3 (62.7) 68.6 (55.8) 67.5 (58.6) 72.2 (64.0) Source: Note: OECD Employment Outlook, 1995, Table A; 2005, Table B and OECD Labour Market Statistics Vertical lines reflect breaks in the series Definition: Total employment ÷ population of working age (15-64)

2004

66.5 (60.1) 60.5 (53.0) 76.0 (72.0) 67.2 (65.5) 62.8 (56.9) 65.5 (59.9) 65.5 (55.8) 57.4 (45.2) 73.1 (65.7) 75.6 (72.7) 67.8 (61.7) 62.0 (49.0) 73.5 (71.8) 77.4 (70.3) 72.7 (66.6) 69.5 (62.6) 72.6 (68.4) 68.7 (57.4) 73.5 (66.5) 71.2 (65.4)

History: Hours per year

• In 1970, most countries had average annual hours at around 1850-1950 hours. Sweden/Norway, were, however, well below despite very buoyant labour demand.

• By 2004, there had been some dramatic changes. Annual hours in France, Germany, the Netherlands fell by around 500; Norway/Japan saw falls of around 400. By contrast, in Sweden, Australia, Canada and the US, the fall was only around 100-150 hours.

Austria Belgium Denmark Finland France Germany 2 Ireland Italy Netherlands 1 Norway Portugal Spain Sweden Switzerland UK Australia 1964

2075 1939 2081 1908 1954 1852

1 Average Annual Hours Worked Per Person in Employment 1970

1982 1902 1956 1868 1830 1784 1730 1939

1973

1851 7 1871 1915 1846 1869 2103 7 1788 1724 1712 2107 1642 1923 7 6 1835 7

1979

1870 1755 1758 1697 1591 1514 2022 1530 1815 1904

1983

1659 1597 1823 1663 1692 1902 1674 1530 1485 1827 4 1912 1532 1713 1853

Canada Japan NZ

2000 1892 1860 2201 1800 2126 1745 2095 1834 4

2013 1 Dependent Employment 1936 1922 1861 1851 2 West Germany 3 2003 4 1986 5 1991 6 1977 Source: OECD Labour Market Statistics except observations 7 from Huberman and Minns (2007)

1990

1601 1452 1771 1610 1566 1911 1656 1433 1432 1858 1824 1561 1648 5 1767 1866 1757 2031 1810 1861

1995

1587 1549 1459 1776 1558 1494 1823 1616 1359 1414 1799 1815 1626 1640 1734 1872 1744 1884 1842 1873

2004

1550

1522 1454 1736 1441 1426 1642 1585 1312 1363 1694 1799 1585 1556

1669 1816 1751 1789 1826 1824

Aspects of the Employment Picture

• The employment rates of prime-age men are generally very high but there are still some striking differences in inactivity rates. Furthermore, these generally exceed unemployment rates.

• There are large differences in the inactivity rates of older men, being high in Belgium, France and Italy and low in Sweden, Switzerland, Japan and New Zealand. The overall picture for older women is similar.

• Inactivity rates among prime-age women are over 30% in Ireland, Italy, Spain and Japan and around 15% in Scandinavia.

• Since the 1990’s, the inactivity rates of prime age women are inversely correlated with fertility rates across countries.

Unemployment, Inactivity and Employment by Age and Gender in 2004 Europe Austria 25-54 Unemployment (%) Men Women 55-64 25-54 55-64

4.3 6.0 4.7 4.1 4.4 7.4 4.1 2.8

25-54 Inactivity Rate (%) Men Women 55-64 25-54 55-64

8.6 8.9 61.4 59.0 20.6 25.7 80.7 78.2

25-54 Employment Rate (%) Men Women 55-64 25-54 55-64

87.4 85.7 36.8 39.3 75.8 68.8 18.5 21.2

Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland UK EU Non-Europe Australia Canada Japan NZ US

4.4 7.0 7.4 9.8 4.5 5.2 3.7 4.3 5.1 6.9 5.7 3.5 3.8 6.5 3.9 6.1 4.3 2.5 4.6 5.5 7.6 5.5 10.9 2.9 4.1 3.9 1.5 6.0 6.0 5.8 3.1 3.9 6.2 4.2 6.1 5.3 2.4 3.9 5.1 7.6 9.8 9.0 3.1 9.2 4.4 3.3 7.1 13.8 5.2 4.6 3.4 8.3 4.3 5.9 4.5 3.3 4.6 5.8 7.0 7.1 12.0 1.5 4.0 3.1 0.6 5.1 9.4 4.0 3.4 2.1 6.4 3.3 5.7 3.0 2.6 3.7 8.7 10.0 6.4 6.7 8.3 8.7 6.3 9.9 7.8 7.5 9.9 4.3 9.0 7.6 10.9 8.4 3.8 8.4 9.5 26.7 44.3 55.7 45.2 33.4 56.0 41.3 25.7 37.2 37.3 24.0 20.9 32.0 44.8 35.6 34.0 17.5 21.8 31.3 15.1 15.4 20.2 18.0 32.1 36.4 22.0 17.2 19.4 31.7 14.7 19.2 23.2 24.5 28.0 18.4 31.9 24.8 24.7 42.4 45.7 65.0 66.2 65.5 79.6 66.4 36.9 55.2 72.8 29.8 44.3 51.7 65.5 56.9 51.0 49.9 40.4 43.7 87.3 83.7 86.7 84.2 87.6 86.5 90.2 86.2 87.4 86.1 85.0 92.3 91.0 86.4 85.7 86.0 92.1 89.4 86.3 69.3 51.5 41.9 51.2 64.7 42.2 56.4 73.2 59.1 58.9 71.6 76.7 68.0 51.8 OECD Employment Outlook 2005, Table C Notes: (i) The inactivity rate equals 100 minus the participation rate. (ii) These data do not include those in prison. This makes little odds except in the US where counting those who are incarcerated would raise the inactivity rate among prime age men by close to 2 percentage points. 61.7 62.0 78.1 76.4 66.0 80.6 78.1 72.0 74.6 65.8 57.8 74.5 80.0 74.9 58.9 80.8 77.1 74.2 69.2 68.9 76.8 65.0 72.7 71.8 54.2 50.4 32.5 29.8 34.0 19.6 32.5 62.7 42.5 24.6 67.4 53.8 47.3 32.3 41.7 46.2 48.6 58.1 54.3

Prime Age Male Inactivity

• Inactivity among prime age men is particularly high in Finland (10%), Norway (9.9%), Sweden (9.9%), UK (9%), Australia (10.9%), US (9.5%). The EU average is 7.6%.

• It is striking that the high levels of inactivity in this group are in the countries with high labour input.

• The majority of inactive men in this group are in this position because of sickness or disability.

Austria Belgium Denmark Finland France Germany Ireland Norway Portugal Spain Sweden UK Australia Canada Italy Netherlands Switzerland 1964

4.7 3.6 3.7

1971

7.2 3.2 3.7 2.8 5.9 5.1 5.3 1.6

3.1

Inactivity Rates among Prime Age Men 1979

7.7 3.7 5.1 5.0 6.7 7.0 7.2 5.0 4.4 4.7 2.5 5.5 5.1

1983

5.6 5.8 6.5 3.9 5.7 4.4 4.3 6.6 4.9 4.5 5.5 5.0 4.6 6.0 6.3

1990

7.8 5.5 7.1 4.6 8.8 8.2 5.9 6.6 7.7 5.7 5.6 5.3 2.2 5.2 6.9 6.9

1999

6.2 8.2 7.2 9.4 5.9 6.4 8.4 9.5 6.5 8.2 7.2 7.1 9.7 2.8 8.4 10.0 8.9

2004

8.6 8.9 8.7 10.0 6.4 6.7 8.3 8.7 6.3 9.9 7.8 7.5 9.9 4.3 9.0 10.9 8.4

Japan NZ

3.4 2.3 2.8 2.9 2.5 6.6

4.3 4.5 5.6 6.2 6.6

EU 15 a = 1972

Source: OECD Labour Market Statistics. For the UK in 1972, we use the UK General Household Survey.

2.9 8.9 8.3 3.8 8.4 9.5 7.6 Note: Individuals in institutions are not included in these data. The numbers are generally small except for men in the US who are incarcerated who comprise close to 2 per cent of the working population.

A Closer Look at Older Men (55-64)

• In most countries the employment rate of older men has declined steadily since the early 1970s.

• Most of the variation in the employment rates of older men is accounted for by variations in inactivity.

• With the notable exception of Italy, inactivity rates among older men across the OECD in 1971 did not exhibit much variation, with nearly all the rates lying between 10 and 25 per cent.

• By 1990, the rates were much more varied, many having increased substantially. Inactivity rates among older men in Scandinavia, excluding Finland, were around 30% or below. By contrast in France and Belgium they were over 60%.

• Why did this happen?

Inactivity Rate of Older Men, 55-64 Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden UK Australia Canada 1964 16.4 20.6 11.5 1971 26.8 25.4 21.5 9.0 40.7 19.4 16.7 18.3 15.4 15.3 11.6 15.6 16.7 1979 49.4 32.8

a 43.7 30.1 33.1 22.1 62.4? 34.7 18.0 24.4 22.4 20.8 30.0

30.5 23.7

a a 1990 64.6 30.9 52.9 60.7 44.1 35.0 47.0 54.2? 27.2 33.5 37.5 24.5 31.9 36.8 36.0 introduced up to 64. We use the average of low case and high case in Table 3 of Duval (2003). Source: OECD Employment Outlook. Table C, various issues, Blondal and Scarpetta (1998). Tables V.1 and V.6 and Duval (2003), Table 3. 1995 64.1 32.1 58.4 (44.8) 58.8 (50.1) 47.3 (35.4) 36.1 (30.8) 55.9 (35.8) 58.6 (49.6) 27.7 (24.4) 39.3 (30.2) 45.1 (39.9) 29.6 (25.0) 37.6 (34.6) 39.1 (39.1) 41.1 (39.7) 1999 63.2 (51.0) 38.1 55.0 (42.2) 57.3 (46.8) 46.2 (34.1) 35.6 (25.0) 56.7 (55.0) 51.6 (31.1) 25.5 (19.0) 36.0 (20.3) 42.2 (27.8) 27.7 (22.7) 36.5 (30.8) 38.3 (34.4) 39.3 (36.7) 2004 59.0 26.7 44.3 55.7 45.2 33.4 56.0 41.3 25.7 37.2 37.3 24.0 32.0 35.6 34.0 Japan US 13.5 16.0 12.9 17.9 14.8 27.2 16.7 32.2 15.2 (11.2) 34.0 (31.1) 14.8 (9.8) 32.1 (30.0) 17.5 31.3 ? refers to a significant break in the series. a = 1983. The figures in parentheses in the 1995 column refer to the estimated inactivity rate were the pension system to be made actuarially neutral up to age 64 (see Blondal and Scarpetta, 1998, Table V.6.) The figures in parentheses in the 1999 column refer to the estimated inactivity rate were early retirement schemes to be removed and actuarial neutrality to be

Inactivity among Older Men

• Evidence suggests that inactivity rates among older men depend crucially on financial incentives to retire before 65.

• In many countries, public sector workers have very strong financial incentives to retire prior to 65. And the numbers of these workers has been rising.

• When unemployment started to rise in the 1970s, many countries introduced early retirement incentives in the mistaken belief that this would help mitigate the unemployment problem.

Inactivity among Older Men Continued

• For example, “unemployment pensions” were introduced in 1979 in Italy at age 57+, in 1983 in Italy at age 55+ if unemployment was due to “severe” economic conditions or industrial reorganisations. In Germany in 1972 they were introduced at 60+ for those unemployed for one year.

• In France, for those over 56, unemployment benefits were paid with no requirements to seek work or retrain. In Netherlands from 1972-87, receipt of disability pensions depended in part on labour market conditions. This produced incentives to “retire” early. Such incentives have been reduced in some countries in recent years.

Australia Belgium Canada Finland France Germany Ireland Italy Japan Netherlands Norway Portugal Spain Sweden UK US 15 4 22 18 8 5 Source: Duval, R. (2003), Figures 4, 7, 8. Implicit Tax Rates on Working for Five More Years (1999) (%) Normal old age pension 1 9 5 At age 55 Early Retirement 1 57 5 Normal old age pension 1 47 13 At age 60 Early Retirement 1 72 13 12 -38 10 70 56 48 22 83 24 75 83 51 16 46 6 13 37 46 6 77 16 115 39 93 37 115 39 93 15 52 58 21 22 5 15 14 22 1 14 5 28 76 69 19 22 5

   Notes: To compute implicit tax rates. Define expected pension wealth/earnings at age

. = PWY R =



105  

   

i i i



real interest rate,

s i

where  probability of being alive at age

conditional on being alive at

. Define net change in expected pension wealth over 5 year period of working 

DPWY R s R C i

/  5

Y PWY R

   5  5 -

PWY R

i R

   4



s i C i

  



total contributions to pension system over earnings at

.  Average implicit tax rate 

DPWY R

/ 5 .

Dependent Variable Implicit Tax Rate Unemployment Rate (age 25-54) Standard Retirement Age Country effects Time effects Countries Observations

The Impact of Implicit Taxes on the Participation of Older Men 1967-99

Part.55-59-Part.50-54 Part.50-54 Part.60-64-Part.55-59 Part.55-59 -0.11 (7.2) -0.12 (1.9) -0.17 (4.9) -0.90 (6.0) √ √ 22 484 0.92 1.63 (3.3) √ √ 22 471 0.89

2 Source: Duval, R. (2003), Table 2. Notes:

Part



Part

 change in participation rate from age

to age

as a proportion of the participation rate at age

A Closer Look at Prime Age Women

• In most countries the employment rates of prime age women have been rising steadily since the 1970s with corresponding falls in inactivity.

• Nevertheless, there remain substantial cross-country variations. Furthermore, these have nothing to do with looking after children. Across Europe, there has been a significant negative correlation between the fertility rates and the inactivity rates of prime-age women since around 1990.

Inactivity Rates Among Prime Age Women (%) Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden UK Australia Canada Japan US 1964 - - 31.9 54.1 - - - - - - - 44.5 - - - 44.1 55.6 1971 - - 28.2 49.1 51.8 77.1 71.3 77.2 - - - 33.5 - 55.4 - 46.2 49.7 1979 - - 18.8 37.0 44.6 72.4 61.1 66.0 34.0 45.2? 69.8 18.9

- 48.6 41.5 43.8 37.7 1983 45.9 16.0 14.2 33.0 41.7? 67.2 57.6 57.6? 26.8 35.7 66.7 13.0? 33.3 46.5 34.4 40.5 32.9 1990 39.2 12.2 13.6 27.8 36.6? 54.6? 46.1 42.1? 20.8? 30.6? 53.1 9.3? 27.0 33.4 24.6 35.8 26.0 ? refers to a significant break in the series. Source: OECD Employment Outlook, Table C, various issues. OECD Labour Market Statistics. 1995 31.8 17.9 14.9 22.7 27.9 45.4 46.3 34.3 19.6 24.8 44.5 13.8 26.0 30.8 24.1 34.8 24.4 2004 25.7 15.1 15.4 20.2 18.0 32.1 36.4 22.0 17.2 19.4 31.7 14.7 23.2 28.0 18.4 31.9 24.7

Inactivity among Prime Age Women

• So what does explain these differences?

• Variations in the marginal tax rates applied to wives with working husbands at low levels of earnings, typically generated by joint versus single taxation of couples. A rise in this marginal rate from 0 to 30% raises inactivity by 5 pps.

• Variations in the strictness of employment protection legislation. Strict employment protection keeps women out of the labour market. This is very important.

• There is some evidence that legislative/union barriers to part-time work raise prime-age women’s inactivity.

Inactivity among Prime Age Women, Continued

• Other factors sometimes considered include public expenditures on child care and children more generally, education, unemployment rates, numbers of children. All these factors are more or less endogenous, so it makes the interpretation of their effects rather tricky.

Percentage Marginal Tax Rates Facing Married Women Husband 100% AW Wife 0% AW Two children Husband 100% AW Wife 67% AW Two children Austria Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal 1981-86 - 44.5 41.5 0 17.9 39.0 7.1 8.6 34.4 20.5 11.2 1996-99 0 48.2 48.0 0 24.4 49.5 0 9.5 5.1 13.5 15.7 1981-86 - 52.3 30.9 32.3 24.1 40.2 70.1 28.0 34.1 32.5 16.6 1996-99 43.0 55.9 51.3 45.1 27.3 53.1 30.0 34.0 45.5 35.8 25.8 Spain Sweden Switzerland UK Japan USA 0 0 26.6 0 21.9 30.8 0 0 22.3 0 18.4 31.6 21.3 29.8 33.3 38.4 18.1 30.8 29.8 38.8 30.7 33.3 16.3 29.9 These include household income and social security taxes less cash transfers. AW = Average Wage. Computed using the tax rules of each country by looking a the tax paid on an annual income for the wife of

and of

 1 where

is 0% or 67% of the average annual earnings of production workers, given the husband earns 100% of the average annual earnings of production workers. Author’s calculations based on an OECD template.

The Inactivity Rate of Women (25-54) in the OECD (1981-2001) Panel Regression

Marginal tax rate, Spouse (100,0) Marginal tax rate, Spouse (100,67) Average tax wedge Employment protection (index, 0-5) Union density Countries Observations 0.18 (4.2) 0.15 (5.1) -0.013 (0.3) 0.050 (4.8) 0.23 (4.7) 17 315 20pp fall in rate induces a 3.6pp fall in inactivity 20pp fall in rate induces a 3pp fall in inactivity 1.3 fall in index induces a 7pp fall in inactivity (This was the fall in Spain from late 80s to late 90s) 20pp fall in rate induces a 4.6pp fall in inactivity Year dummies Country dummies R 2 √ √ 0.94 Notes: i)Marginal tax rates as in Table 9. Average tax wedge is the average labour tax rate, the sum of the average payroll, income and consumption tax rates. Computed by taking the average tax rates from OECD Taxing Wages Statistics including employers’ SS contributions and adding the average consumption tax rate ((indirect taxes-subsidies) ÷ consumption) from OECD National Accounts. Employment protection, an index referring to regular employment (see OECD Employment Outlook, 2004, Chapter 2, first three columns of Table 2A, 2.4). Union density, ratio of employed union members to employees (see Nickell et al. 2005, p. 23).

Notes: Marginal tax rates: As in Table 11. Average tax wedge: This is the average labour tax rate, the sum of the average payroll, income and consumption tax rates. Computed by taking the average tax rates from OECD Taxing Wages Statistics including employers’ social security contributions and adding the average consumption tax rate ((Indirect taxes – subsidies) ÷ consumption) from OECD National Accounts. Employment protection: An Index referring to regular employment. Details of its computation are variable in OECD Employment Outlook, 2004, Chapter 2. The numbers may be found in the first three columns of Table 2.A2.4. Union density : ratio of employed union members to employees. See Nickell et al. 2005, p. 23.

Austria Belgium Denmark Finland France Germany Ireland Italy Netherlands Women’s Part-Time Work: Voluntary or Involuntary, 1996 1. Percentage of working women who are part-time 2. Percentage of working women who are voluntarily part-time (2.÷1.) x 100 21.7 32.1 24.2 11.3 24.1 29.9 26.4 20.9 55.5 21 21 18 6 15 27 17 11 45 97 65 74 53 62 90 64 53 81 Portugal Spain Sweden UK Australia Canada 15.1 16.2 23.5 41.4 40.0 28.9 5 8 20 30 26 17 33 49 85 72 65 59 Japan US 36.7 20.2 37 10 100 50 Note. In Europe voluntary includes women who say they did not want to work FT and did not say they worked PT because of education, sickness/disability or because they were unable to find a FT job. Outside Europe, the definition is broader. Source: OECD Employment Outlook, 2001, Table 4.8.

A Closer Look at Overall Unemployment Rates

• Unemployment rose in all OECD countries from the 1960s to the 1980s, in many cases to relatively high levels.

• In some countries, active policy changes have enabled them to reduce unemployment from high levels back to the levels of the 1970s, notably Australia, Denmark, Ireland, Netherlands, UK.

• In some countries, unemployment remains at high levels, notably Belgium, France, Germany, Italy, Spain.

Unemployment (Standardised Rate) % Austria Belgium Denmark Finland France Germany (W) Ireland Italy Netherlands Norway Portugal Spain Spain*

1960-64

1.6 2.3 2.2 1.4 1.5 0.8 5.1 3.5 0.9 2.2 2.3 2.4

1965-72

1.4 2.3 1.7 2.4 2.3 0.8 5.3 4.2 1.7 1.7 2.5 2.7

1973-79

1.4 5.8 4.1 4.1 4.3 2.9 7.3 4.5 4.7 1.8 5.5 4.9

1980-87

3.1 11.2 7.0 5.1 8.9 6.1 13.8 6.7 10.0 2.4 7.8 17.6

1988-895

3.6 8.4 8.1 9.9 10.5 5.6 14.7 8.1 7.2 5.2 5.4 19.6

1996-99

4.3 9.2 5.3 12.2 11.5 7.4 8.7 9.9 4.5 3.8 6.0 19.4 15.8

2000-1

3.7 6.8 4.4 9.4 9.0 6.4 4.0 8.4 2.6 3.6 4.1 13.5 11.0

2002

4.2 7.3 4.6 9.1 8.9 6.8 4.4 7.4 2.8 3.9 5.0 11.4 Sweden Switzerland UK Australia Canada Japan New Zealand USA Notes 1.2 0.2 2.6 2.5 5.5 1.4 0.0 5.5 1.6 0.0 3.1 1.9 4.7 1.3 0.3 4.3 1.6 0.8 4.8 4.6 6.9 1.8 0.7 6.4 2.3 1.8 10.5 7.7 9.7 2.5 4.7 7.6 5.1 2.8 8.8 8.7 9.5 2.5 8.1 6.1 8.6 3.5 6.8 7.9 8.7 3.9 6.8 4.8 5.5 2.6 5.2 6.5 7.0 4.9 5.7 4.4 4.9 3.2 5.1 6.4 7.7 5.4 5.2 5.8 6.4 4.4 4.6 5.5 7.2 4.7 3.9 5.5 As far as possible, these numbers correspond to the OECD standardised rates and confirm to the ILO definition. The exception here is Italy where we use the US Bureau of Labour Statistics “unemployment rates on US concepts”. In particular we use the correction to the OECD standardised rates made by the Bureau prior to 1993. This generates a rate which is 1.6 percentage points below the OECD standardised rate after 1993. The rates referred to in Spain* refer to recently revised ILO rates. For earlier years we use the data reported in Layard et al. (1991)). For later years we use the OECD Employment Outlook (2005, Table A).

2004

4.5 7.8 5.4 8.9 9.7 7.7 4.5 6.9 4.6 4.4 6.7 10.8

What Policy Seems to Work

• Reforms of the social security system concentrating on helping individuals into work. It is important that people in the Employment Service are each responsible for specific workless individuals. Workers in the Employment Service must be very well trained and given the right incentives. They can employ a mixture of carrots and sticks. The actual level of benefits is not particularly important.

• Having the right sort of wage determination system. If there is a high level of collective bargaining coverage, some degree of co-ordination of bargaining is required. High levels of coverage alongside low rates of union membership and decentralised and adversarial bargaining generally lead to high unemployment.

More Policies

• A deregulated service sector helps to sustain high levels of labour demand.

• Low levels of labour taxes and the absence of very stringent employment protection legislation are also helpful.

Annual Hours Worked By the Employed

• Less is known than about employment rates.

• Driven mainly by holidays/paid vacations and by short-term sickness and parental leave.

• In most countries, minimum paid vacations are governed by legislation.

• What about part-time work?

• Wide variations in short-term sickness/parental leave absence, mainly due to benefits.

Austria Belgium Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland UK Australia

1964

2 2 3 3 3 2.5 2 0 b 2.5 3 1 1 4 1 0 3 Minimum Annual leave Legislation a

1984

4 4 5 4 5 3 3 0 b 3 4.2 3-4.4 5 5 2 0 4

1992

5 4 5 5 5 3 3 0 b 4 4.2 3-4.4 5 5.4 4 0 4

2003

5 (5) 4 5 (6) 4 (5) 5 (5) 4 (4) 4.2 c 4 (5.8) 4 (5.6) 4 (6.2) 4.2 (5) 4.4 (4.9) 5 (6.6) 4 4 (4.9) 4

Public Holidays (1991) (days)

13 10-13.5 10 5-9 11 11 + 4 regional 8 11 9 10 13 13 9 8 8 + 3 regional 9 a.

Canada Japan NZ US 1 1 2 0 2 1 3 0 2 2 3 0 2 2 3 0 In parentheses is the average collectively agreed annual paid leave. 10 12 11 10 In weeks. If legislation is in days, divide by 5. Right to paid annual leave established in legislation but length determined by collective bargaining Sources: OECD (1994) Jobs Study II, Table 6.12. European Industrial Relations Observatory.

Part-Time Employment as a Proportion of Total Employment (%) Austria Belgium

1973

6.4 3.8

1979

7.6 6.0

1983

8.4 8.1

1990

- 13.5

1995

11.1 14.5 Denmark Finland France Germany Ireland Italy Netherlands Norway Portugal Spain Sweden Switzerland UK Australia Canada Japan NZ US 5.9 10.1 6.4 20.8 16.0 11.9 9.7 13.9 11.2 15.6 22.7 6.7 8.2 11.4 5.1 5.3 16.6 25.3 7.8 23.6 16.4 15.9 12.5 15.4 13.9 16.4 23.8 8.3 9.7 12.6 6.6 4.6 21.4 29.0 24.8 19.4 17.5 15.4 16.2 15.3 18.4 19.2 7.6 12.2 13.4 10.0 8.9 28.2 21.8 7.6 4.6 14.5 22.1 20.1 22.6 17.0 19.2 19.7 14.1 16.7 8.4 12.5 14.2 13.0 10.5 27.3 27.5 8.6 7.1 15.1 23.8 22.2 30.8 18.6 21.3 21.5 13.3

2003

13.6 17.7 15.8 11.3 12.9 19.6 18.8 12.0 34.5 21.0 10.0 7.8 14.1 25.1 23.3 27.9 18.9 26.0 22.3 13.2 Source: OECD Note Part-time employment refers to persons who usually work less than 30 hours per week in their main job.

Sickness and Maternity/Paternity Benefit Recipients as a Percentage of Employees Sickness benefit Maternity/Paternity Total Austria Belgium Denmark France Germany Ireland 1980 3.8 2.4 5.8 3.7 4.1 5.8 1999 2.9 1.8 6.0 3.0 3.8 3.0 1980 benefit 1999 1.8 0.2 2.9 0.4 0.6 0.8 0.3 0.4 2.1 3.2 0.3 0.4 1980 5.6 2.6 6.4 4.5 4.4 6.2 1999 5.8 2.2 8.1 6.2 4.1 3.4 Netherlands Spain Sweden UK Australia Canada Japan NZ US 6.2 0.5 6.1 1.8 1.6 0.2 3.1 0.7 2.8 4.8 0.7 7.9 1.3 2.1 0.3 1.8 2.1 2.9 0 0 2.0 0.5 0 0.3 0.1 0 0 0 0 2.8 0.4 0 0.6 0.2 0 0 6.2 0.5 8.1 2.3 1.6 0.5 3.2 0.7 2.8 4.8 0.7 10.7 1.7 2.1 0.9 2.0 2.1 2.9 Sources: Benefit recipients/Population of working age, OECD Employment Outlook, 2003, Table 4.A1.1. Employment/Population, OECD Labour Market Statistics. Divide the former by the latter.

Estimates of Weeks per Year for Employees accounted for by Sickness and Maternity/Paternity Leave Austria Belgium Denmark France Germany Ireland Netherlands Spain Sweden UK Australia Canada Japan NZ US Proportion of employees who are sickness or maternity benefit recipients time 52 1999 3.0 1.1 4.2 3.2 2.1 1.8 2.5 0.4 5.6 0.9 1.1 0.5 1.0 1.1 1.5 a Other absences b (table 2) 2002 4.0 2.3 4.3 4.7 4.7 0.4 2.4 (1.7) 3.7 1.2 - - - - 2.4 Absences due to sickness and maternity 2002 5.2 4.2 3.6 3.8 2.8 2.0 4.4 2.4 7.6 3.2 - - - - 0.9 c Sources: a) b) c) Table 17, final column x 52/100 Table 2, column 5 OECD Employment Outlook, 2004, Table 1.5. Weeks of absence due to sickness and maternity are derived by doubling the last column of Table 1.5. This adjustment reflects the OECD best guess of the correction for under-reporting. For the US, we take the number from Alesina et al. (2005), Table 3.

Some More Detailed Analysis

• High marginal tax rates on initial earnings for spouses have a positive impact on hours, discouraging Part-Time working.

• High marginal tax rates, more generally, have a negative impact on hours for obvious reasons.

• Earnings dispersion has a strong positive effect on hours: i) Veblen hypothesis – the bigger the dispersion, the harder people work to emulate others.

ii) Bell/Freeman – the bigger the dispersion, the more people work longer hours to signal quality, since promotion is more valuable.

See also Michelacci and Pijoon-Mas (2007), CEPR, DP 6314.

Annual Hours Worked by the Employed in the OECD (1981-99)

Dependent Variable, log (hours) Marginal tax rate, spouse (100,0) 1. 0.086 (2.1) 2. 0.17 (4.1) The size of the effects in Col. 2 20pp fall in rate reduces hours by 3.4% Marginal tax rate, spouse (100,67) Average tax wedge Employment protection (index, 0-5) Marginal tax rate, single (100) Union density

  50

th percentile percentile

  -0.072 (2.7) -0.16 (3.4) -0.012 (1.2) 0.055 (1.9) 0.11 (2.3) -0.16 (3.8) -0.033 (0.6) -0.12 (3.5) 0.062 (1.9) 0.21 (2.5) 0.70 (7.4) 20pp fall in rate raises hours by 3.2% 1.3 fall in index raises hours by 15.6% 20pp fall reduces hours by 4.2% 15% increase raises hours by 10.5%

  90

th percentile percentile

  0.22 (2.2) 15% increase raises hours by 3.3% Business sector labour productivity (log) Male unemployment rate (log) Countries Observations Year dummies Country dummies 17 276 √ √ 15 177 √ √

2 0.94 0.94 Notes Marginal tax rate, single. Computed using tax rules by looking at taxes paid by a single person on an annual income of

and of

 1 where

is the annual average earnings of production workers. 50/10, 90/50 percentile ratios in the earnings distribution. OECD Labour Market Statistics. Other variables are defined in Table 10.

The Distribution of Earnings

• The major driving force behind the distribution of earnings is the distribution of skills. For example, the cross-country correlation of earnings dispersion with test-score dispersion (from the International Adult Literacy Survey) is over 0.8. See also Bedard/Ferrall (2003).

• But unions are also important. For example, 90/10 earnings ration = 1.71+0.98 (95/5 prose literacy ratio) (4.2) N=14, R²=0.84

- 0.13 union density – 1.26 union coverage (0.2) (2.9) • Koeniger et al. (2004) find that, as well as unions, employment protection and minimum wages significantly reduce earning dispersion.

Weekly Hours per Person of Working Age

30.0

25.0

20.0

15.0

10.0

19 70 19 74 19 78 19 82 19 86 19 90 19 94 19 98 20 02

Year

Source: OECD, Labour Market Statistics. France/Germany Italy Sweden United States

Some Overall Stories

• Overall picture. Anglo-Saxon, high labour input sustained over last 35 years. France/Germany, labour input was high, has fallen dramatically over last 35 years. Scandinavia, high labour input, close to Anglo-Saxon, sustained over last 35 years. Netherlands, Italy, low labour input, very stable over last 35 years.

• The tax story (eg. Prescott).

• The tax plus all other benefits story.

• The Alesina et al. story. Unions, welfare, social democracy encourage high taxes, pressure for work sharing.

• None of these is complete. For example, Scandinavia has stronger unions, more generous welfare and more social democracy but no work-sharing pressure cf. France/Germany. Why not? Italy, Netherlands also do not fit easily.

Some Overall Stories Continued

• In Scandinavia, all the social partners have, for a long time, agreed on a model of the economy focussed on international competitiveness. Note they are small open economies.

• Thus, in response to adverse shocks, they correctly concentrated on wage restraint to reduce unemployment, rather than on cutting labour inputs, which they recognised would tend to impact adversely on international competitiveness and raise rather than lower unemployment.

• By contrast, in France/Germany, unions and the state argued, incorrectly, that responding to adverse shocks by reducing labour inputs would prevent increases in unemployment (the work-sharing argument). This policy response did not help to reduce unemployment but did succeed in permanently reducing labour input. A good example of this may be seen in the changes in the inactivity rates of older men.

•

Italy and Netherlands: Special Stories

In the early 1970s, Italian labour input was low because retirement ages were low (60 for men, 55 for women) and only 30% of working age women worked.

• Labour input still low for very similar reasons – no element of work-sharing here. Italian labour market institutions are essentially focused on preserving the position of the male head of household (eg. Minimal welfare, very strong employment protection, labour market entry very difficult).

• The Netherlands also had low labour input in the early 1970s. Essentially because of exceptionally low levels of women’s employment.

• Since then, there has been a huge increase in women’s employment (up from under 30% to over 65%). But also a huge increase in part-time work (up from 16% to 35%). The combination has been to keep labour input relatively low and stable. Note, part-time work is not involuntary and all the social partners have completely reversed their views on part-time work, from strongly against to strongly in favour.

Final Point

• The most important lesson is that unregulated labour markets, low taxes and weak unions are not necessary for sustaining high levels of labour input. Having generous but work friendly benefit systems and eschewing the use of work-sharing policies in response to adverse shocks can work just as well.

Understanding Why Some Countries Work So Much Harder …

Transcript Understanding Why Some Countries Work So Much Harder …