Über die Autorin bzw. den Autor

Mary Gregory is Deputy Head of the Department of Economics, Fellow, and Tutor at St Hilda's College, University of Oxford. Wiemer Salverda is Director of the Amsterdam Institute for Advanced Labor Studies at the University of Amsterdam. Ronald Schettkat is Professor of Economics at the University of Wuppertal in Germany. All three have published widely on labor economics.

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"Services and Employment is a collection of brilliant, seminal papers and innovative research."--Catherine Guillemineau, The Conference Board

"This excellent book deals with an important and interesting topic--the employment gap between Europe and the United States. It provides a broad and balanced analysis of the labor market situation in Europe and the United States by bringing to light interesting features of the service industry that economists have tended to overlook."--Thorvaldur Gylfason, University of Iceland

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"Services and Employment is a collection of brilliant, seminal papers and innovative research."--Catherine Guillemineau, The Conference Board

"This excellent book deals with an important and interesting topic--the employment gap between Europe and the United States. It provides a broad and balanced analysis of the labor market situation in Europe and the United States by bringing to light interesting features of the service industry that economists have tended to overlook."--Thorvaldur Gylfason, University of Iceland

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Services and Employment

Princeton University Press

Introduction

The "jobless growth" experienced in the United States in the economic cycle of the first years of the 21st century brought to the fore an issue that has for some time been a major focus of political concern in Europe-the "missing jobs" or "employment gap." In the early 1970s the employment rate in the European Union economies was marginally above the rate in the United States. Over the ensuing quarter-century the United States forged ahead in job creation while in Europe employment growth was at best sluggish. By the initial years of the new millennium the employment rate in the economies of the European Union averaged 65.3 percent of the population of working age, while in the United States it had risen to 74.4 percent. This gap of over nine percentage points represents around 25 million "missing jobs" in the EU. In response to this, and to the concomitant problems of higher unemployment rates, the prevalence of long-term unemployment, premature withdrawal from the labor force, and limited employment opportunities for women in many (but not all) EU countries, the EU Heads of Government at their Lisbon summit in 2000 adopted the objective of raising the employment rate across the European economies by almost ten percentage points within the following decade. If this ambitious objective is to be realized, even with some slippage beyond 2010, it is essential to gain an understanding of the factors that have given rise to the employment gap between the European Union and the United States.

There is no dearth of candidate explanations for Europe's poor employment performance. The most prominent have been those that center on labor market institutions of "social Europe" and the rigidities that they introduce: trade union power in wage bargaining, and the mandatory or conventional extension of bargaining outcomes to nonunionized workplaces; employment protection provisions; minimum wages; the generosity of unemployment benefit systems; the size of the tax wedge of payroll, income and consumption taxes between the wage cost to the employer, influencing labor demand, and the take-home pay of the worker, affecting its supply. This view, given initial impetus by the OECD's Jobs Study of unemployment in the advanced economies in the early 1990s (OECD 1994), has a natural resonance with U.S. commentators but also has support within Europe. Its influence can be seen in contemporary policy stances. In the United Kingdom the Labour government through Chancellor Gordon Brown has claimed a strong macroeconomic record in conjunction with its deregulated labor market. In the face of unemployment rates of 10 percent or above, Germany has attempted to seek major changes to its social insurance and unemployment benefit arrangements with the Hartz reforms, while France has retreated from the legislated 35-hour working week.

Even as these latter economies edge towards reform the argument on the centrality of labor market rigidities is losing its cohesion as the links between labor market institutions and employment performance are put under detailed scrutiny. The conjunction of labor market rigidities and high unemployment is increasingly accepted as involving only a minority of EU economies, albeit several of the major ones: Germany, France, Italy, and Spain. Rigidities in product and financial markets are coming under the spotlight, with restrictions to competition, innovation, and the creation of new firms all seen as inhibiting employment growth. Most tellingly, the emergence in the United States of jobless growth, more typical of European experience, is undermining the easy invocation of the job creation capability of the unregulated U.S. labor market.

The employment gap between the United States and Europe is not simply about jobs. Not only are more Americans in employment, but they work more hours per week and more weeks per year, mainly through shorter vacation entitlements and even shorter vacations actually taken. Per head of the working-age population Americans work an average of 25.1 hours each week of the year, the Germans 18.0 and the French 17.4. This implies that hours worked per person in France and Germany are around 70 percent of the U.S. level. As with the jobs gap, these differences are of recent origin. In the early 1970s hours worked per person of working age were approximately the same in the United States and Europe. Americans continue to work broadly the same hours as in 1970 but have raised their participation rate substantially. Europeans now work much shorter hours and have failed to compensate for this decline in hours by a rising participation rate. This poses the question: why does the population of the world's richest country work so much, while less wealthy continental Europeans take leisure?

If this reflects social and cultural attitudes between the two sides of the Atlantic, why has this divergence emerged so dramatically since the early seventies? Frank (1999) argues in Luxury Fever that cultural attitudes are themselves shaped by the economic context of national life. The consumption patterns of the American income elite, whose incomes have been rising substantially in recent decades, stimulate consumption by less well-off Americans. In a book that has received widespread attention Warren and Tyagi (2003) make the argument that access to a public infrastructure that is increasingly diverging in quality, especially in the quality of schools, is pushing Americans into a spending race. To gain access to good schools, often located in the suburbs, households now require two incomes in order to be able to meet the higher housing and transport costs involved. As a result of these spending pressures, they argue, double-income families are in real terms no better off.

In a provocative recent contribution American Nobel laureate Prescott (2004) claims that "virtually all the large differences between the U.S. labor supply and those of Germany and France are due to differences in tax systems," particularly the higher income tax rates in Europe. This is a striking claim, as he acknowledges he had expected the major influences to be institutional constraints on the operation of labor markets and the nature of the unemployment benefit system.

Prescott's diagnosis has come under vigorous challenge from Alesina, Glaeser, and Sacerdote (2005), who also reject any appeal to deep cultural differences between a European approach to leisure and the workaholism of the United States. Instead they revert to the theme of labor market institutions, but with a new twist. Noting the sustained role of collective bargaining in continental Europe over the relevant time frame, they focus on the commitment by European labor unions to a policy of "work less, work all" in support of employment. Their argument is that, while this has failed to increase employment overall, it may have had a society-wide influence on leisure patterns through a "social multiplier" where the value of leisure is enhanced as more people participate. Alesina, Glaeser, and Sacerdote then raise the question whether union policies and regulations to which they have led, such as legally mandated holidays, are suboptimal in distorting labor supply decisions. Or are they in fact welfare-improving for the European countries, as Blanchard (2004) argues? General reductions in working hours achieved through collective bargaining may solve the...