CONTRASTING PATTERNS OF WORK IN THE WORLD’S RICH COUNTRIES

Unregulated labour markets, low taxes and weak unions are not necessary for sustaining high levels of labour input. That is the conclusion of new research by Giulia Faggio and Professor Stephen Nickell. Their study of patterns of work across the OECD finds that while the Anglo-Saxon countries do the most work, the amount of work done in Scandinavian countries – measured in terms of both the employment rate and average annual working hours – is only about 10% less.

How might we explain the patterns of work across the richer OECD countries? First, how do we define the amount of work? Basically, we take the total number of hours worked per year in each country normalised on the population of working age.

This overall measure has two aspects: the employment rate, that is, the number of workers as a proportion of the working population; and the average number of hours per year worked by each worker. The latter takes account of both holidays and short-term sickness, so it refers to hours actually spent working, not hours paid for.

So what are the facts?:

• Three broad groups of countries emerge from the analysis: Anglo-Saxon countries, which do the most work; Scandinavian countries, where people work about 10% less; and the major continental European countries, where people work over 25% less than the Scandinavians.

• The biggest change in the last 40 years has been the dramatic decline in market work in the major continental European countries. For example, in 1970, people in Sweden worked around 3% less than those in France and Germany. By 2004, they worked around 26% more.

• Dividing this picture into employment versus average hours, the Scandinavians have the highest employment rates, along with the Dutch and Swiss. Anglo-Saxon workers tend to work the most hours per year, with the United States being top, mainly because they have much the shortest annual holidays of all countries. The major continental European economies tend to have both the lowest employment rates and the lowest annual hours.

So what explains these patterns? One possible explanation is that market work in some countries is replicated by non-market work in others. For example, more time in Germany is spent on food preparation in the home than in the United States, where a higher proportion of food expenditure is in restaurants. But this explanation does not hold water: in fact, market work and total work (market plus non-market work) are strongly positively correlated

The main conclusions of this research are as follows:

• First, countries (mainly Anglo-Saxon) with relatively unregulated labour markets, low taxes, comparatively weak unions and benefit systems that are work-friendly tend to sustain high levels of labour input.

• Second, France and Germany have the opposite characteristics and labour input has declined dramatically in the last 40 years.

• Third, most of the Scandinavian countries, while having many of the same characteristics as France and Germany, have nevertheless sustained comparatively high levels of labour input.

The key factor here is that in the small, open Scandinavian countries, trade unions and the state recognised that the way to maintain high levels of labour input was to focus on international competitiveness. This led to their rejecting work sharing as a response to adverse shocks rather than wage restraint. By contrast, Germany and particularly France embraced work sharing and labour supply reduction as a policy response.

Thus, for example, both the state and the trade unions pressed for reductions in the working week, financial incentives for older workers to retire early and similar policies as a response to rising unemployment. While these policies did not work as a method of reducing unemployment, they were very successful in lowering overall levels of labour input.

Perhaps the most important lesson we can draw from all this is that unregulated labour markets, low taxes and weak unions are not necessary for sustaining high levels of labour input. Many of the Scandinavian economies, which have none of these, illustrate that by having generous but work-friendly benefit systems and eschewing the use of policies to reduce labour supply in response to adverse shocks will work just as well.

ENDS

Notes for editors: ‘Patterns of Work Across the OECD’ by Giulia Faggio and Stephen Nickell is published in the June 2007 issue of the Economic Journal.

Stephen Nickell is Warden of Nuffield College, Oxford. Giulia Faggio was at the Centre for Economic Performance at LSE.

For further information: contact Stephen Nickell on 01865-278519 (email: steve.nickell@nuffield.ox.ac.uk); or Romesh Vaitilingam on 07768-661095 (email: romesh@compuserve.com).