Home > Uncategorized > Alternative to Mankiw’s view on tax incentives and work: maybe Europeans want more free time

Alternative to Mankiw’s view on tax incentives and work: maybe Europeans want more free time

from Dean Baker

Greg Mankiw warned New York Times readers about the dangers of adopting the Biden agenda and moving more towards a European-style welfare state. In his piece, titled “Can America Afford to be a Major Welfare State,” Mankiw noted:

“Compared with the United States, G.D.P. per person in 2019 was 14 percent lower in Germany, 24 percent lower in France and 26 percent lower in the United Kingdom.

“Economists disagree about why European nations are less prosperous than the United States. But a leading hypothesis, advanced by Edward Prescott, a Nobel laureate, in 2003, is that Europeans work less than Americans because they face higher taxes to finance a more generous social safety net.”

While Prescott and Mankiw attribute the gap in annual work hours between Europe and the United States to the disincentive created by higher European taxes, there is an alternative explanation: Europeans workers may just want to have more leisure time and they have the political power to impose their will.

Supporting this view is the fact that the European welfare states all mandate far more paid time off than the United States. Germany mandates that workers get 20 days a year of paid vacation, in addition to 13 paid holidays. The Netherlands also mandates 20 days of paid vacation, in addition to 9 paid holidays. Demark mandates 25 days of paid vacation and 9 paid holidays. These countries also all mandate paid sick leave and paid family leave.

In other words, it is not simply that individuals are looking at the tax code and deciding to work less, parliaments are writing laws that guarantee most workers more leisure and less work. This is because politicians win elections based on the promise of more leisure and less work.

It’s true, as Mankiw points out, that Europeans on average have lower incomes than people in the United States, but this is largely because they have made a political decision that they prefer more leisure time to higher incomes. (The gap in income for the typical worker is almost certainly not as large as the gap in the average income, since there is less income inequality in Europe.)

Mankiw may think that it’s better for people to work more and have more money, but apparently people in Europe think otherwise. Since several states and cities have mandated paid family leave and sick leave in recent years, it may be the case that people in the United States also disagree with Mankiw.

  1. September 16, 2021 at 5:28 pm

    My daughter and her husband live in Europe and prefer it even to “Socialist Canada!” And they live in a non-Euro highly capitalist country where American Oligarchs often like secretly to park their money. Their income is much higher than the average in the USA and Canada and their expenses are somewhat higher. Their health care coverage seems much better too.

    But seriously one of the many real problems with Mankiw is his misuse of the GDP as a measure that has any real value. But people here know that or should know that by now. If disasters in the USA are more numerous and severe than in Europe as I suspect and the costs of remediating them is them greater, then of course GDP will be higher per capita. And since health care is a component of GDP and the USA is the most costly in the world, then there is another bump to the USA GDP per capita.

  2. Michelle B
    September 16, 2021 at 5:35 pm

    Well, hell yes! My friend who works the assembly line at GM has recently enjoyed several week-long shut downs (paid) due to supply chain issues. She has been enjoying the work a week, off a week routine. I would love a work routine/schedule like that. As evidenced by the current worker shortage, American workers are tired of being overworked, underpaid and under-appreciated. More time off and better national health benefits/social safety net would ultimately help the American worker be more productive while on the job and happier and healthier. Mankiw needs to get out of his ivory tower more often.

  3. Brad Mayer
    September 16, 2021 at 7:24 pm

    Mankiw is simply doing his duty to be capital-centric, as the the per-capita GDP measure assumes that employees’ wages and salaries are an attribute of capital. On that Mankiw agrees with Marx, though the latter assumed this for the purpose of a dialectical critique of the political economic theories of the Mankiws of the world.

    All Mankiw is really saying is the obvious: Fewer hours worked in favor of leisure equals lass profit and less wages/salaries, equals less aggregate profits/wages, equals lower GDP per capita, equals a lower rate of capital accumulation, etc., in short less capitalism, what a shame. Marx would have characteristically called the “argument” a tautology.

  4. Adane
    September 16, 2021 at 7:44 pm

    GDP per capita (average).
    What about the median income?

  5. September 17, 2021 at 8:06 am

    If you offshore production, your productivity increases. Buying stuff in China for $1 and selling it in the US for $100 boosts productivity.

    US healtcare takes nearly 20% of GDP, more than any country in the world. Cuba achieves the same life expectancy at a fraction of the cost. But hey, productivity gets a boost.

    And then you have all the money spent on lawyers. Lawyers make lots of money and produce nothing. But it is great for productivity.

    I would prefer more holidays instead of working to pay for inept heathcare and lawyers.

  6. Ken Zimmerman
    September 21, 2021 at 8:52 am

    It is well documented that American and to a slightly smaller extent British economists are certain they are the only and best experts on the economic decisions people ‘should’ make. How dare workers of any sort disagree! Moreover, how dare workers want to organize their lives in ways not approved by economists. Ah, the damages of arrogance.

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