Countries differ considerably in terms of the number of hours people work.
Despite the criticisms levelled at Greece, with some claiming that Greek workers are ‘lazy’, according to 2010 figures, the average worker in Greece worked 2109 hours per year – more than in any other European country. The average German worker worked 1419 hours and the average Dutch worker only 1377.
Internationally, amongst developed countries, Korea has the highest number of working hours per worker at 2193 per year. In the USA, the figure is 1778 hours and in the UK it’s 1647. (Click on chart below for a larger version.)
But working long hours does not mean working more productively. Generally the countries in which people work longer hours have lower output per hour.
The following podcast and articles look at the relationship between hours worked and productivity and consider which way the causality lies. They also look at related issues such as the proportion of part-time working and the length of annual paid holidays.
Podcast
Hardest Working Nations (also at) More or Less: BBC Radio 4, Tim Harford talks to Jon Messenger from the ILO (18/5/12)
Articles
Who works the longest hours? BBC News Magazine, Wesley Stephenson (23/5/12)
Are Greeks the hardest workers in Europe? BBC News Magazine, Charlotte McDonald (26/2/12)
Book
Working Time around the World ILO, Sangheon Lee, Deirdre McCann and Jon C. Messenger (Routledge, 2007)
Data
International Comparisons of Productivity – 2010 – Final Estimates: Statistical Bulletin ONS (6/3/12)
International Comparisons of Productivity – 2010 – Final Estimates: Data ONS (6/3/12)
Productivity Statistics OECD
Table 8: Average annual working time: Hours per worker Employment and Labour Markets, OECD
Questions
- Which countries tend to work the longest hours?
- Would cutting working hours, either through legislation or by agreement with companies, allow more people to be employed? Explain why it might be more complicated than this.
- What is the relationship between labour productivity per hour and the average number of hours worked per worker? Do people work longer hours because they are less productive or are they less productive because they work longer hours?
- Why factors determine labour productivity?
- Why may average hours worked be deceptive in terms of assessing how hard people are working?
- Why do US workers work more hours per year on average than UK workers?
International economists have long advocated the advantages of free trade. By boosting competition, increasing choice and market size, trade has long been seen as an engine of growth and efficiency.
For many years, tariffs and other restrictive trade practices have been removed on trade between both developed and developing countries and many rounds of negotiations have taken place, with mixed results.
The World Trade Organisation (WTO) plays a key role in trade negotiations and has the main aim of liberalising trade. The organisation requires its members to operate according to a variety of rules, including the prohibition of quotas and the inability of countries to raise existing tariffs without negotiating with their trading partners.
If any country breaks a trade agreement, the WTO can impose sanctions. A current case that has been referred to the WTO for ‘consultation’ concerns Argentina. Argentina has imposed various import restrictions on trade, such as import licensing and a requirement for countries to balance its exports and imports.
A number of WTO members recently expressed their concerns about these restrictive trade practices. The EU trade commissioner Karel de Gucht said:
Argentina’s import restrictions violate international trade rules and must be removed. These measures are causing very real damage to EU companies – hurting jobs and our economy as a whole. … Argentina’s trade policy has become rooted in unfair trade practices.
Argentina has said that it was expecting the move from the EU, but claims that its protectionist measures are there to support and re-industrialise the country. This case is unlikely to be resolved any time soon and while the ‘restrictive trade practices’ remain in place, EU companies trying to export to Argentina will find barriers, such as a requirement for all imports to receive pre-approval.
The effects of these restrictions have already been felt, with EU exports to Argentina down by 4% in April this year, compared with the same month last year. The following articles consider this issue.
EU takes Argentina trade fight to WTO France 24, (25/5/12)
EU files WTO suit over Argentina’s import restrictions Reuters, Sebastien Moffett and Tom Miles , (26/5/12)
EU escalates dispute with Argentina Financial Times, Peter Spiegel and Joshua Chaffin, (25/5/12)
EU refers Argentina’s import restrictions to the WTO BBC News (25/5/12)
EU steps up challenge to Argentina’s policies Wall Street Journal, Matthew Dalton (25/5/12)
Questions
- What are the rules governing the members of the WTO?
- What are the advantages of free trade?
- To what extent should emerging economies be allowed to impose protectionist measures to help support their economies?
- What action could the EU take in response to the ‘restrictive trade practices’ imposed by Argentina?
- What is import licensing?
- How will the import restrictions affect EU companies and the growth of the EU as a whole?
In the models of perfect and monopolistic competition, the long-run equilibrium involves firms making zero supernormal profit. The key assumption driving this outcome is that supernormal profits in the short run attract new entrants to the market.
Increased competition then results in lower prices for consumers and firms’ profits fall. Therefore, an important question is how long does it take for this process to take place?
In a recent post on the Freakonomics blog, Daniel Hamermesh describes a situation in which he was actually able to observe this adjustment process taking place amongst buskers in the centre of Madrid.
This interesting example illustrates that, at least in some cases, this process can start even before entry occurs. This is because incumbents are able to make adjustments to their existing strategies, in the case of the buskers by changing their location. Consequently, profitable opportunities start to be eroded away very quickly.
Perfect competition Chillin’Competition blog, (24/10/11)
Questions
- What are the assumptions of the model of monopolistic competition?
- What is the difference between monopolistic and perfect competition?
- Does the market for buskers fit well with the assumptions of monopolistic competition?
- In this market what might be the benefits for consumers of increased competition?
- What are the key strategies incumbents might use in this market?
- How long do you think entry might take in this market?
Here’s a question that goes to the heart of economics and the social sciences generally: how desirable is the market system?
Our lives are dominated by markets. Whether in working or consuming, we operate in a market economy in which money is exchanged for goods or services. But also financial and product markets determine much of the structure of society, where most things seem to have a price.
But whilst, as a positive statement, we can say that money and markets are all around us, does that make them desirable? Markets provide signals and incentives; but are the signals the right ones? What are the incentives and how do we respond to them? And are these responses optimal?
You will probably have studied various ways in which markets fail to provide the optimal allocation of resources. But what are the limits of markets as a mechanism for social choices? And is there some more fundamental issue about the morality of a society that is organised around markets?
These are questions considered in the following podcast. It is an episode from BBC Radio 4’s Start the Week programme, hosted by Andrew Marr, with guests Michael Sandel, Diane Coyle and Grigory Yavlinksy. Here are the programme details:
Andrew Marr discusses the relationship between markets and morals with the political philosopher Michael Sandel. In his latest book, What Money Can’t Buy, Sandel questions the dominance of the financial markets in our daily lives, in which everything has a price. But the economist Diane Coyle stands up for her much maligned profession, and points to the many benefits of a market economy. The Russian economist Grigory Yavlinksy argues against viewing the world of money as separate from culture and society: he believes the financial crisis was merely a symptom of a wider moral collapse, and that it is time to examine the way we live.
(Links to the three contributors: Michael Sandel, Diane Coyle (see also), Grigory Yavlinsky.)
Podcast
Michael Sandel on Money and Morality BBC Start the Week programme (21/5/12)
Videos and articles
For a range of videos and articles on the morality of capitalism, see the previous post at:
We need to talk about Capitalism (28/1/12)
Questions
- What crises are there in current capitalism?
- What, according to Michael Sandel, is the difference between a market economy and a market society?
- Is the market society a relatively new phenomenon, or does it go back hundreds of years?
- To what extent is the greed expressed through markets and encouraged by markets affecting/infecting society and human relationships generally?
- What is the role of morality and trust in determining the desirability of market relationships?
- To what extent does a market economy allow people, rich and poor, to live separately from each other and not interact as joint members of society?
- What are the value systems promoted by marketisation? Should certain aspects of human life be outside these value systems?
- To what extent is the crisis of capitalism a crisis of economics?
- What policy alternatives are there for rebalancing society?
- What is the role of economists in advising on policy alternatives?
Calls for a simplified tax and benefit system have been ongoing and many see the Coalition’s plans for a Universal Credit as a step in the right direction. However, a second suggestion set out in a report by lobbying groups is to introduce a single rate of income tax at 30%. The argument is that it will simplify the system, help lower income earners and boost growth.
As well as the introduction of a single rate of income tax, The 2020 Tax Commission’s Report also suggests an increase in the personal allowance to £10,000; scrapping National Insurance Contributions, stamp duty, inheritance tax and air passenger duty, as well as cutting fuel duty by 5p. For the typical tax payer, it may sound great – the difference between your gross and your net pay would narrow, but the wider consequences must be considered. Although a single rate of income tax would undoubtedly simplify the system, the impact on government finances must be considered. The commission predicts that overall borrowing would fall by £35bn after 15 years, but that the national deficit would increase by £49.1bn in the first year. Perhaps not an ideal solution given the current state of the national deficit!
The report does contain some radical change, but the idea of simplification is well-recognised as a necessary principle of any tax system. As the Chairman of the Commission, Allister Heath said:
It is time for Britain to make a vital choice between tweaking the status quo and letting our economy continue to be crippled by complex and punitive taxes, and drastically changing course with a radical but realistic plan for a tax system fit for the 21st century.
The 2020 Tax Commission has set out that plan and would ensure that income is taxed once at a single, much more reasonable rate. It could create the conditions to establish the UK as a global trading hub, generating renewed prosperity for all those who live and work here.
The current system is complex and many people end up paying an extremely high rate of tax, once everything has been paid. The Guardian article below gives a nice illustration. “If you earn income from shares, first corporation tax is taken out of the profits. Then you pay taxes on the dividends. Then because those profits drive up the share price you pay capital gains tax as well.” With a simpler and fairer tax system, the Commission argues that it will boost the competitiveness of the UK economy and help boost its struggling growth rate. How many, if any, of these proposals will be incorporated into the government’s plans is anybody’s guess, but it definitely presents an interesting solution and problem.
Report
The Single Income Tax The 2020 Tax Commission (May 2012)
Articles
Why it’s time for a single income tax Guardian, Matthew Elliott (21/5/12)
Business backs income tax rate of 30% Financial Times, Martin Sandbu (21/5/12)
Calls for single 30% income tax rate BBC News (21/5/12)
Single 30% tax rate ‘essential’ for growth Sky News (21/5/12)
Osborne urged to introduce 30pc income tax for all The Telegraph, Tim Ross (20/5/12)
Tax shake-up urged to empower consumers and kickstart growth Independent, Russell Lynch (21/5/12)
The Tax Reform Britain needs Wall Street Journal, Matthew Sinclair (20/5/12)
Questions
- What are the key principles of a tax system?
- Explain why simplicity is so important when reforming a tax system. How can it affect the incentive to work?
- Would a 30% single rate of income tax be equitable?
- If the reforms set out in the report were to go ahead, what do you think would be the impact on goods and services provided by the government, such as the NHS, education, roads?
- Using indifference analysis, illustrate the effect of a cut in the basic rate of income tax. How does it affect the decision to work more or less? You should consider the income and substitution effects in your answer.
- Why does the report argue that the reforms they suggest would help boost growth?
- How might the proposals affect government finances in both the short and long term?
Countries differ considerably in terms of the number of hours people work.
