Higher rewards from longer working hours in U.S.A. than in Germany

December 19, 2001

Free Market Foundation

Are Americans obsessed with putting in more hours at the office? That’s the general opinion among many Europeans, although the evidence points to a decidedly dollars-and-cents explanation.

The United States is a country with relatively high wage inequality one in which pay increases and individual living standards are directly related to a willingness to work more hours.

Economists say that workers in Europe have shorter average workdays, workweeks and total hours worked annually than Americans due to differences in levels of dispersion (or inequality) of earnings.

A comparison of working conditions in Germany and the U.S. shows two very different systems:

In Germany, pay differences among firms are minimal, job security high, and unemployment and national health care benefits greatly lessen the fear of getting laid off.

In the U.S., the situation is the opposite: pay difference are substantial, unemployment benefits meagre and getting laid-off can put an end to health benefits.

Furthermore, in the United States, working more hours has a substantial effect on future earning potential.

An American working 2,000 hours per year who increases that by 10 percent, to 2,200 hours, can generally expect a 1 percent increase in future wages.

In contrast, a year of full-time schooling (about 1,000 hours of study) increases earnings by about 5 percent.

A 1997 survey found that more Americans than Germans sought to work additional hours despite the fact that Americans were already working longer hours per week.

Economists say that if wage inequality is bound to hours worked, it will not be possible for European Union countries to increase the dispersion of wages toward American levels without giving up their relatively shorter work schedule nor can Americans reduce their workaholic behaviour without first narrowing the distribution of earnings.

Source: Matthew Davis, More Working Hours Raise Future Earnings, NBER Digest, April 2001; based on Linda Bell and Richard Freeman, The Incentive for Working Hard: Explaining Hours Worked Differences in the U.S. and Germany, NBER Working Paper No. 8051, December 2000, National Bureau of Economic Research.

For NBER text http://papers.nber.org/papers/W8051
For more on Work http://www.ncpa.org/iss/eco/

FMF Policy Bulletin\11 December 2001