The Riddle of August

Why do Americans work so much more than West Europeans? A couple of years ago, Arizona State University professor Edward C. Prescott noted that a substantial turnabout had taken place.  Until the early 1970s, Europeans worked as hard or harder than their American counterparts.  Now they work substantially less.  Increases in holidays and vacations account for most of the difference.

Whence the new-found European taste for leisure? Macroeconomist Prescott concluded that high marginal tax rates could explain the whole thing. But then marginal tax rates are to some economists what gold prices were to gold-bugs:  the explanation of basically everything that moves.

Prescott’s paper did provoke an interesting response. Alberto Alesina and Edward Glaeser (of Harvard University) and Bruce Sacerdote (of Dartmouth) agreed that the effect originally might have begun with taxes.  But perhaps a “social multiplier” took over at some point, reinforcing a widely-shared desire for more vacation.

Workers could never bargain individually for shorter hours, even though most might prefer to spend more time with their families and friends.  The desire for a bigger kitchen or another SUV ordinarily would get the upper hand. Only mandated vacations could displace the competitive itch — and perhaps make everyone a little happier in the process. For more or less the same reason, leagues require that all hockey and baseball players wear helmets, no exceptions.

If Alesina, Glaeser and Sacerdote are right, you can’t prove it by the behavior of professional economists (or, then again, perhaps economists neatly illustrate the point). The elite Econometric Society met in London last week for its quinquenninal World Congress, six days of symposia to hash over recent developments and five grand lectures: Daniel C. McFadden of the University of California at Berkeley on measurement issues in consumer welfare, Tim Besley of the London School of Economics on electoral strategy and economic policy, Jean Tirole of the University of Toulouse on the organization and regulation of platform industries, and Ariel Pakes of Harvard on theory and measurement in industrial organization.  Thomas J. Sargent gave the presidential address, offering something new in general equilibrium theory: three careful ways of comparing European and American experiences of unemployment.

Meanwhile, the European Economic Association met in Amsterdam.  Phillipe Aghion, Harvard professor and co-author with Andre Sapir of An Agenda for a Growing Europe, gave the Schumpeter lecture on “The Policy of Growth.” And in Jackson Hole, Wyoming, the world’s top monetary policy economists and central bankers trooped to the annual symposium held by the Kansas City Federal Reserve Bank, this time to pay fealty to Alan Greenspan, who must retire next year, after 18 highly successful years at the helm of the Federal Reserve Board.  

Myself, I subscribe to the view, espoused by physician/researcher George Vaillant over the course of an equally long career, most recently in Aging Well: Surprising Guideposts to a Happier Life, that lengthy vacations away from home and strong relationships, good marriages in particular, are the chief determinants of good health and long life. EP will resume its normal workload in September — in other words, next week.