Wednesday, January 6, 2010

Europe v America

It's a new decade, and time for another wave of Europe v. America comparisons. I have a few points:

It's often mentioned that Europeans work less than Americans, so of course they are poorer. This is important, but there is also a tradeoff between domestic work and office work. In Germany, to take one example, people actually work as much as Americans when domestic and office work are taken together. Labor market rigidities, on top of their effects on youth unemployment, act as barriers to female employment and encourage greater housework. It's not obvious that Europe is "better" in this regard.

One often hears from Yglesias and company, by way of innuendo and suggestion, that Europe is poorer but due to lower inequality provides a better deal for the poorest. But if one thinks of income distributions as bell curves, America's higher mean basically cancels out its higher variance. In real terms, the bottom 10% of the population in both America and Northern European countries earn comparable amounts. They may receive a bit more in government services in Europe, but they also pay more in taxes there due to regressive taxation. I don't have figures for the rest of the income distribution, but mathematically one suspects that everyone else is better off in America. Which is to say: even the Nodic model of Social Democracy (which, due to its free labor markets and welcoming business climate, is much better off than the Continent) does not unambiguously provide a better standard of living for people at any range of the income distribution.

Swedish-Americans earn more than Swedes; German-Americans more than Germans; and so on and so forth. This is about as clear a test as one can get on the effects of national institutions on individual outcomes, and America destroys the competition.

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