Contrast between US and EU working hours rooted in cultural difference

For any European moving to work in the United States, the short annual holidays are a culture shock. By contrast, Europe seems leisurely, with a minimum of four weeks' paid holidays.

Some US economists argue that the reason for the difference is strong European unions who forced these European Union rules on the labour market. The European response to this is that weak unions and dominant employers force the pace in the US. The reality is probably that people in the US have different preferences than Europeans – there is a cultural difference.

In Europe, if most workers preferred more pay and fewer holidays, eventually the regulatory system and employers would respond. However, that is not what people want. Similarly, in the US, if longer holidays were attractive to employees, employers would offer that option. They don’t because cultures differ on either side of the Atlantic.

A study by Nicola Fuchs-Schundlen, published last month in the UK National Institute Economic Review (NIER), has looked at the differences in hours worked in Europe and the US. It considers the average hours worked per year by all adults rather than per worker, reflecting the fact that couples make joint decisions on their working patterns.

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The study shows that in the less developed countries in the world, per-capita working hours averaged 29 hours a week, compared with 19 hours in developed countries. People in poor countries are not only income poor but they are also leisure poor. As we get richer we tend to take more leisure time, especially as higher hourly pay allows us have a reasonable standard of living while working less.

Even in the hardworking US, adults today work about 1,250 hours a year, compared with more than 1,400 in 1900.

Diversity

The NIER study looked at pre-recession working hours. In 2006, European average working hours were about 1,100 a year, about 90 per cent of the US yearly average. However, there was considerable diversity within Europe – Switzerland and the Czech Republic reached US annual hours worked, the UK was slightly below at 1,200, Ireland was about 1,000, and Italy recorded the lowest at 900 hours a year.

The onset of the recession affected average national working time – in Ireland, our average annual hours dropped by 150 during the recession, and has since recovered as employment picked up.

The NIER study looked behind the raw numbers at the factors that explain them. The difference in hours can be broken down into the effect of higher employment rates, the number of weeks worked in the year and the number of hours worked in a working week.

Roughly a third of the difference between the US and Europe can be explained by difference in typical weeks worked, in other words, annual holidays.

Hours worked in any country are also affected by employment rates, and these in turn reflect the skill mix of the population – the higher the average level of education, the higher the employment rate. The study showed that differences in national education levels indirectly explained a third to a half of the differences in average yearly working hours between Europe and the US.

A third factor explaining inter-country differences in working hours is the employment rate of women, and whether they are more likely to work part-time.

In Ireland, for example, married women averaged 600 hours a year in paid work compared with 1,700 for men, whereas the pattern was much more equal between men and women in Scandinavia.

Tax individualisation

Differences in childcare provision are clearly very important to women's employment, but the paper also highlights the significance of the tax system. In Germany, married couples are taxed as a unit and, as a result, married women tend to face high marginal tax rates. By contrast, in Scandinavia married women and men are taxed separately, so that married women returning to work face lower marginal tax rates.

Ireland has limited tax individualisation, but joint taxation of couples, so in this regard we are probably closer to Germany than to Sweden.

The degree of tax individualisation introduced in Ireland in 2000 was quite controversial, as some saw it as disadvantaging couples where one partner cared full-time for the children. However, the NIER paper estimates that a full individualisation of the tax system in Ireland would see average hours worked by married women rise by a quarter.

While some families would lose out by such a move, the analysis in the NIER study suggests that full individualisation could see a big increase in female employment and income.