Monday, January 30, 2012

revealed preferences to the rescue?

So there's this myth among the American liberal elite that Europe has a higher standard of living despite working less (yes a myth, even moving beyond the purchasing-power-adjusted GDP-per capita numbers, which show most concisely how dominant of a success story the United States is.) The core of this myth is that Europe traded work hours for leisure time and that this leisure time makes up for the loss of income.

But despite the valiant attempt of the above-linked paper, measuring utility meaningfully and broadly is really impossibly hard, and the ideal comparison wouldn't even try to make these accounting adjustments like how-much-American-spending-doesn't-contribute-to-welfare and how-much-more-value-are-Europeans-getting-from-their-government-for-their-extra-taxes and so on. Ideally, we would want revealed preferences to tell us the answer.

This is also really hard because people aren't able to make decisions on the margins relevant to these international comparisons. But what if we limit ourselves to strictly the question of whether four extra weeks of vacation time is worth the drop in income?

Are there median-earning jobs in which hours worked are truly chosen on the margin equating leisure time with work time? I can't think of a good example. Entrepreneurs fix their own work schedule but realistically they have to work all the time to stay afloat. Cab drivers set their own schedules but don't make enough money to be a median earner; likewise for any other flexible-hour job I can think of. A small number of jobs during the last recession instituted a policy change in which people could choose to work less for less pay, but with job security in a tight job market of the utmost concern, I'm guessing that most people who would love that option normally were too afraid of signaling their lesser commitment or their dispensability  or somesuch to actually take it.

Better ideas? Is there a paper that already tries to do this?

If we could find people in the U.S. who make $35,000 (or whatever is median per capita or median per household) and take six weeks of vacation but who could take less vacation and earn $10k more, I would believe that the European model is making people better off on average. I doubt this is true (even though I want it to be true, because it would be true for me, and I would like work norms to line up with my own preferences...)

(Or, we might find an intermediate result, in which the median hourly wage earner prefers 3.5 weeks of vacation, in which case neither the U.S. or Europe is optimizing.)

1 comment:

Tim Anderson said...

OK Yes it's pretty amazing how big the U.S. is and how prosperous.
I'll have to smack the fool who told me the Dutch were so much better off.
I'll abandon my claims of vast inferiority to the Dutch in prosperity terms.
If only we could convince other countries to adopt more of our customs, such as
imprisoning more of their young men and invading each other.
It sucks having to resort to e/quality of life arguments for the purpose of maintaining our inferiority.