I Could've Sworn They're Just Lazy

According to some recent research, much of the 30 percent wealth gap betwixt Europeans and Americans can be explained by the fact that Americans work more. I'll pause here to allow readers time come to terms with this mind-blowing revelation. ***

Why Americans work more, of course, becomes the germane question. The answer can be found in the following quote:

Today, unemployment risk is smaller in the US than in Europe, obtaining better jobs is easier, there are greater chances to move up the career ladder, and to get employed in highly paid jobs. This implies quite different incentives during the working life of American and European workers.

In other words, Americans work more than Europeans because Americans have a better chance of being rewarded for working more. At first glance this seems as obvious as the first observation, but higher wages and better opportunities don't always induce people to work more--indeed, many might actually work less. The former response is called the "substitution effect" by economists and the latter response is termed the "income effect." Both play a role in the labor-leisure trade-off.

Both are also intuitively easy to understand. If a person were to be given a raise, work might become more attractive relative to leisure and the person would work more. Alternatively, a raise allows one to work less hours and earn the same income as previously, so the person might work less--it's simply a matter of preference, and often both work simultaneously. This study seems to give evidence that the substitution effect is stronger than the income effect in the United States.

Germany would do well to quicken the pace of its labor market reforms and rid itself of policies that distort wealth-producing incentives by not only discouraging workers from working more, but also by discouraging employers from hiring new workers in the first place.