Discussion Paper

No. 2019-1 | January 03, 2019
Welfare, employment, and hours of work


The authors propose an explanation of why Europeans choose to work fewer hours than Americans and also suffer higher rates of unemployment. Labor market regulations, unemployment benefits, and high levels of public consumption in many European countries reduce, ceteris paribus, the gains from being employed, which makes employed workers ask for higher wages relative to productivity. The higher wages make firms offer fewer vacancies, as well as raising the level of consumption enjoyed by workers, which makes them want to enjoy more leisure because consumption and leisure are complements in the utility function.

JEL Classification:

J63, J64, J65


  • Downloads: 134


Cite As

Axel Hall and Gylfi Zoega (2019). Welfare, employment, and hours of work. Economics Discussion Papers, No 2019-1, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2019-1

Comments and Questions

Anonymous - Referee report 1
January 15, 2019 - 12:09

see attached file

Anonymous - Reader comments
January 16, 2019 - 07:58

This paper starts with misleading or false claims about aggregate labour markets and continues with a lengthy model, using very unrealistic assumptions, which offersd no real-world insight. The authors don’t realise that unemployment rates (U) are very poor indicators of labour market conditions compared to labour force participation (P), long ...[more]

... term U and underemployment. They ignore the growth of non-standard employment and self–employment, and distributional issues which invalidate their generalised wage comparisons. Thus hourly real wages for male workers (non-managerial) have not risen in ‘high–wage’ (for whom?) US since about 1980, and most wages in the UK have not risen since 2007! The reason is of course not worker preferences, but in large part due to growing employer market power and austerity, systematic neglect of both of which is yet another reason why their discussion and model completely miss the point. Their anti-Keynesian macro model assumptions are absurd-public goods are supplied without using labour, directly generating their counter-factual results.

In fn. 1 they quote unemployment and work time from 2012, soon after the Great Recession, grossly untypical for long term values, although up to date values are available. No date is supplied for different data in appendix C. Most references are pre-recession! They ignore widespread unpaid overtime. They never mention that P for their own country, Iceland, is higher than for the UK or US, while P in the US is lower than in most EU countries except Germany! Strong employee bargaining power in the Nordic economies has allowed workers to reduce average hours as real wages and productivity rise, while welfare –increasing opportunities for part time work for skilled workers in the Netherlands (nearly 50% voluntary part time!) reduce total hours, which all contribute to higher life satisfaction rankings. High U in Nordic economies is due to macroeconomic or other factors never mentioned, but not to high welfare spending. High earners in the UK and US suffer from a long hours culture that is not mentioned, instead of enjoying the complementarity of leisure and consumption available to all in the high tax, egalitarian Nordics.