Divorce rates help explain why Americans work more than Europeans..

A very longish paper by the trio explained in voxeu.

Why Americans work more than Europeans? This Europe vs US issue has always been a hot topic.

The authors say apart from higher tax rates in Europe, it is higher divorce rates in US which explain part of the problem:

According to recent research, Americans work 30% more than Europeans (Prescott 2004 and Rogerson 2006). This was not the case in early 1970s when Western Europeans worked more than Americans. What accounts for the large differences between countries today? Our study finds that divorce rates and tax rates together on average explain 58% of the difference in terms of hours worked between the US and 17 European countries.

The paper is different as it looks at men and women seperately.

Our research starts by trying to uncover the determinants of cross-country differences in work hours through analysing the hours worked by different demographic subgroups (Chakraborty et al. 2012). We find that women are typically the largest contributors to the aggregate differences. European women work less than American women, irrespective of whether we look at single or married women, or women with and without children.

Cross-country variation in tax systems is one of the most popular proposed explanations for the observed discrepancy in work hours between the US and Europe. The basic intuition here is straightforward – higher labour income taxes reduce the incentives to work. However, for the 18 countries in our sample, we find that, while there is indeed a negative correlation between various measures of taxation and hours worked by men, the corresponding correlation for women is close to 0. Figure 1 below plots the correlation between male and female labour supply and the “average effective tax rate”, a measure that combines the average labour income tax and consumption tax in each country into a single tax rate.

As divorce rates are higher in US, women tend to work harder and longer in US compared to Europeans.

We believe this is because marriage provides an implicit social insurance since the spouses are able to share their income. However, if divorce rates are higher in a society, women have a higher incentive to obtain work experience in case they find themselves alone in the future. The reason the incentive is higher is because in our data, women happen to be the second earner in the household more often than men. European women anticipate not getting divorced as often and hence find less reason to insure themselves by working as much as American women.

Further:

Our divorce argument is further supported by empirical studies finding that US states that adopted “no-fault” divorce laws in the 1970s experienced a spike in female labour supply relative to other states (no-fault divorces do not require a showing of wrong-doing by either party). This is also precisely the time when Americans gradually started to work more than the Europeans. Most European countries adopted no-fault divorce laws later and still have significantly lower divorce rates. Our tax argument finds support in studies pointing out that European and American tax levels were about equal around 1970 when they began to diverge.

We conclude that in response to changing social norms, American women have moved to insure their own future by working harder, while European men in response to higher taxes have found it less attractive to work long hours.

Interesting findings..Next q is why divorces are higher in US?

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