Why Americans work themselves to death (and why Europeans don't)

Last saturday, there was a meeting of heterodox economists (a group called 'makroskop', see http://makroskop.eu/ ) in Germany. One of them, schumpeterian economist Alfred Kleinknecht, compared some interesting figures from Europe and the US. He took 1960 (so that you cannot explain differences with rebuilding efforts after the war) as base year and compared what happened after that. He found that GDP growth was more or less the same on both sides of the Atlantic Ocean, but in the US, the total amount of hours worked has gone up by a factor of 1.4, while in Europe, we only work 95% what we worked in 1960 (and if you take into account that nowadays more people have a job than in 1960 - in particular woman - and you compare how much individuals worked back then and how much they work now, the effect is even more astonishing). This can be directly linked to automation. In Europe, automation went way faster, productivity per hour increased much more. The interesting point now is what caused that Europe automated faster than the US. Kleinknecht (and others) explain that with how wages are negotiated. In the US, wages are largely negotiated individually or at best between a company and a union. In Europe, wages are (or rather: were) negotiated between unions and entire branches in entire regions. Thereby, companies with low productivity had to catch up with their productivity or they went bankrupt, while in the US, less productive companies could just pay the workers lower wages and stay competetive. Thereby, employers in Europe had much more incentives to automate than American employers. On the other hand, Europe was not particularly good at distributing the jobs that weren't automated away to everyone. Kleinknecht says that the American model leads to lower unemployment which leads him to the conclusion that a low rate of unemployment shouldn't be the main goal. This view was not shared by others at the meeting, as they pointed out that unemployment was largely caused by monetarist central bank policies (NAIRU!) and flawed exchange rate policies that made some countries systematically more competitive than others (and in particular screwed Mitterand's attempt to build a mixed system between socialism and capitalism in France that was in some ways even more ambitious than what Corbyn wants to do in the UK). (a source where at least some of Kleinknechts views are summarized: https://archiv.wirtschaftsdienst.eu/jahr/2017/13/angebotsoekonomie-wenig-innovation-viele-jobs/ ) So, what do you think about this? Do we really have to choose between rapid automation or full employment? Do you agree that collective bargaining makes a difference? What's your opinion on the role of central banks, particularly when you consider the (well known) concept of NAIRU? And what do you have to say about Mitterand's failed socialist experiment in France?

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  • Markus Pfeifer
    published this page in Ask Prof. Wolff 2017-10-16 09:51:13 -0400