“There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
“Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
“…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
“…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
“A full-throated defense of economic dynamism.” - The Wall Street Journal
“Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
“Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
“…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
“…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
“…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Analysis of the incentives that shape entrepreneurship, investment, innovation, work, and risk-taking. The archive examines how taxes, regulation, compensation, ownership, competition, and potential rewards influence economic behavior.
AI Summary.A National Bureau of Economic Research working paper estimates that Norway's tax reforms, which nearly doubled the effective marginal tax rate on business wealth from 0.47% to 0.88%, prompted at most 74–98 wealthy individuals to emigrate, cutting wealth tax revenues by about 2%. The author finds no evidence of reduced corporate investment or higher bankruptcy rates.
Marius RingNational Bureau of Economic Research
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Norway’s 2021–24 tax reforms nearly doubled the effective wealth tax on business equity, from 0.47% to 0.88%. Though 100 of the wealthiest individuals emigrated, wealth-tax revenues rose from 2021 to 2024, with no significant decline in investment among Norwegian-owned firms.
How much wealth tax revenue is lost when business wealth taxes double?
Core argument: Marius Ring estimates that Norway’s 2021–2024 tax reforms, which nearly doubled the effective marginal tax rate on business wealth from 0.47% to 0.88%, drove at most 74–98 individuals to emigrate, roughly 1.78% of the top 0.1% of the taxable wealth distribution.
The [reforms increased the] top statutory tax rate from 0.85% to 1.1%, while preferential treatment of stocks in private and public companies was substantially reduced. Hence, the reform almost doubled the top marginal tax rate on business wealth from 0.47% to 0.88%. Figure 2 plots outmigration rates for individuals in different wealth bins. My estimates suggest that about 1.78% of the top 0.1%, or about 0.24% of the top 1% migrated due to the reform. This amounts to 74–98 individuals. Panel A of Figure 5 shows total wealth tax revenues around the reform. Reform-driven outmigration thus lowers the revenue increase from 75.1% to 71.5%, while the remaining reduction to 70.4% reflects outmigration predicted by pre-reform trends. Figure 15 considers the effect on corporate investment. I find no indication of reduced investment rates during 2022–2024. I can reject reductions in the investment rate larger than 1.2 percentage points, about half the predicted reduction in a standard model with no financial frictions, in which the reforms increase the user cost of capital.
Takeaways by Macro Roundup® AI
Marius Ring estimates that Norway’s 2021–2024 tax reforms, which nearly doubled the effective marginal tax rate on business wealth from 0.47% to 0.88%, drove at most 74–98 individuals to emigrate, roughly 1.78% of the top 0.1% of the taxable wealth distribution.
Ring finds no evidence that Norwegian-owned firms raised dividend payouts or cut investment rates during 2022–2024, with 95% confidence intervals excluding investment rate reductions larger than 1.2 percentage points, about half the 2.2 points predicted by a standard frictionless user-cost model.
Norwegian wealth tax revenues rose 71.5% from 2021 to 2024 net of reform-driven outmigration, against a counterfactual 75.1% absent outmigration, with emigration estimated to reduce revenues by 0.65 billion NOK, or 2.05% of counterfactual revenues.
Behavioral Responses to State Income Taxation of High Earners: Evidence from California— A California ballot measure raising top marginal income tax rates by up to 3 percentage points prompted an additional 0.8% of the affected tax base to leave the state, with an estimated income elasticity of 2.5–3.2 for high earners who stayed. The authors estimate these responses eroded 45.2% of windfall revenues within one year and 60.9% within two.
Ed Conard Debates Furman On “The Expected Value of Risk Taking”— A debate on U.S. fiscal policy argues that spending increases, rather than the tax increases needed to fund them, slow growth, and that higher taxes would reduce the expected value of America's innovative risk-taking. The argument holds that cutting debt below 100% of GDP is critical.
AI Summary.An analysis of more than 31,000 global venture capital deals finds 62% lost money and over half lost 50–100% of invested capital, though the distribution of returns has much fatter tails than buyouts or public equities. Venture funds averaged a public market equivalent ratio of about 1.4, indicating returns above public markets.
Michael Mauboussin and Dan CallahanMorgan Stanley
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Btw the mid-90s and 2018, 62% of global venture capital investments lost money, and more than half of the deals lost 50–100% of invested capital. Yet US VC returned ~40% higher mean wealth btw 1984 and 2020 than a parallel investment path in the S&P 500.
Do most venture deals lose money while funds outperform public markets?
Core argument: Across more than 31,000 global venture capital deals from the mid-1990s to 2018, 62% lost money and over half of all deals lost 50–100% of invested capital, measured as multiples of invested capital.
Exhibit 8 shows in excess of 31,000 observations of returns, measured as multiples of invested capital at the beginning of the period, for global venture capital deals. These results are from the mid-1990s to 2018. 62% lost money and more than one-half of all deals lost 50 to 100% of invested capital. The offset is that the tails are much fatter than those for buyouts or public equities. Public market equivalent (PME) is generally reflected as a ratio between private equity and public market returns. A ratio above 1 reveals relative outperformance and below 1 means underperformance. Here’s an example of how PME works. Say a fund drew $200 million from its investors in January 2021 and paid out $470 million in December 2025. An investor could have invested the $200 million in the S&P 500, which returned $392 million over the same period. The PME would be 1.2 ($470/$392). For venture funds, the average over [1984-2020] was about 1.4.
Takeaways by Macro Roundup® AI
Across more than 31,000 global venture capital deals from the mid-1990s to 2018, 62% lost money and over half of all deals lost 50–100% of invested capital, measured as multiples of invested capital.
Venture capital return distributions have much fatter tails than those of buyouts or public equities, offsetting the majority of deals that lose money.
Public market equivalent, the ratio of private equity returns to public market returns, averaged about 1.4 for venture funds from 1984 to 2020, with a ratio above 1 reflecting relative outperformance.
Related Articles:
Killer Incentives: Status Competition and Pilot Performance during World War II— Analysis of over 5,000 German World War II fighter pilots finds that public peer recognition was associated with higher victory scores among skilled pilots without higher mortality, while average pilots gained little in victories but died at higher rates. The authors conclude status-based awards can have uneven effects in high-risk settings.
The Deep End: 2025 Alternative Investments Review— In venture capital, only consistently investing with top-quartile managers outperformed the S&P 500, while the median manager at best matched public equity markets and fourth-quartile managers destroyed value relative to equities. Fees are part of the issue: an 11.7% annualized NASDAQ 100 return falls to 7.4% under a 2%/20% fee structure.
One Hundred Years in the U.S. Stock Markets— Over a century, U.S. publicly traded stocks generated roughly $91tn in shareholder wealth enhancement, with returns strongly positively skewed and dominated by a relatively small number of high-performing firms. Because most possible outcomes fall below the mean in a skewed distribution, the authors argue financial planning should focus on median outcomes or the full distribution.
AI Summary.Prediction markets now offer contracts tied to companies' key performance indicators, which may give investors an additional way to assess the expectations embedded in stock prices. Crowds do not always correct errors: when beliefs and trading become correlated, or when uninformed participants flood a market, gaps open between implied and likely probabilities that informed participants can exploit.
Michael Mauboussin and Dan CallahanMorgan Stanley
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Price discovery in the stock market involves information from many disparate sources. “From time to time, beliefs and trading in the stock market become correlated and crowds amplify, rather than correct, errors. This is the madness of crowds.”
Do prediction markets always correct investor errors?
Core argument: Prediction markets now offer contracts tied to companies' key performance indicators, which may give investors an additional way to assess the expectations embedded in stock prices.
The ability to compare information from different markets has never been better. For example, prediction markets now offer contracts tied to key performance indicators for companies, which may provide investors with an additional way to assess the expectations embedded in stock prices. From time to time, beliefs and trading in the stock market become correlated and crowds amplify, rather than correct, errors. Steven Crist, an author and well-known handicapper, has noted that “the best friend that horseplayers have are the big race days.” The reason is that a wave of uninformed participants place bets that create a large gap between the implied and likely probability of winning. This opens an opportunity for informed handicappers to make profitable bets.
Takeaways by Macro Roundup® AI
Prediction markets now offer contracts tied to companies' key performance indicators, which may give investors an additional way to assess the expectations embedded in stock prices.
Beliefs and trading in the stock market become correlated from time to time, and crowds amplify rather than correct errors.
Handicapper Steven Crist has noted that big race days are horseplayers' best friend, because a wave of uninformed bettors creates a large gap between implied and likely win probabilities, opening profitable bets for informed handicappers.
Related Articles:
Who Is On the Other Side?— Research defining an industry "run-up" as a cumulative return of 100% or more over two years finds that such run-ups do not predict unusually low average future returns, though they do raise the probability of a crash, defined as a 40% drawdown. Volatility, turnover, and equity issuance help predict those crashes.
One Hundred Years in the U.S. Stock Markets— Over a century, U.S. publicly traded stocks generated roughly $91tn in shareholder wealth enhancement, with returns strongly positively skewed and dominated by a relatively small number of high-performing firms. Because most possible outcomes fall below the mean in a skewed distribution, the authors argue financial planning should focus on median outcomes or the full distribution.
Chart of the Day: U.S. Households at Record Equity Allocation Heading into AI IPOs— U.S. households hold a record share of their assets in equities, exceeding the dot-com and Nifty Fifty eras, while price-earnings multiples sit near all-time highs and fewer than 10 stocks account for almost 40% of the S&P 500's market value. The author argues equity ownership has become structural rather than discretionary, making markets simultaneously more stable and more fragile.
AI Summary.Modeling U.S. venture-backed startups, the authors estimate that taxing capital gains as they accrue rather than at sale would cut founders' average ownership at exit by about 25% while raising the share of entrepreneurs with positive payoffs from roughly 16% to nearly 47%. Less risk-averse founders prefer taxation at sale.
Eduardo Azevedo, Florian Scheuer, Kent Smetters and Min YangNational Bureau of Economic Research
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~84% of venture backed founders end with zero exit value, while the top 2% capture ~80% of total exit value. Accrual-based taxation would reduce mean founder ownership stakes at exit by ~25%, but with fully refundable tax credits, raise the share of founders with >0 payoffs to ~47%.
How does taxing unrealized capital gains affect startup founders?
Core argument: The authors estimate that average founder shares at exit fall about 25% under accrual-based capital gains taxation relative to realization-based taxation, as advance taxation forces additional share sales before exit.
This paper examines how taxing unrealized capital gains affects entrepreneurship, combining a dynamic career-choice model with new evidence on all U.S. venture capital backed startups. Figure 1a plots a histogram of the positive company exit values. The distribution spans several orders of magnitude and is relatively similar to a lognormal, but with a right skew and fatter right tail. A stylized model highlights a key trade-off: accrual-based capital gains taxes dilute successful founders by forcing additional share sales before exit, a well known concern, yet they also provide insurance through tax credits to founders whose ventures fail, an aspect often overlooked. Quantitatively, advance taxation substantially reduces founders' ownership at exit: average founder shares fall about 25% under accrual-based taxation relative to realization based taxation. At the same time, accrual taxation increases the fraction of entrepreneurs with positive payoffs from around 16% to nearly 47%. Embedding these outcomes in a career-choice framework shows that the insurance value of accrual taxation partly offsets dilution costs: less risk-averse founders favor realization-based taxes, while more risk averse ones prefer accrual-based taxes. The strength of this insurance channel depends on the highly skewed distribution of entrepreneurial payoffs and the design of loss provisions under accrual-based taxation.
Takeaways by Macro Roundup® AI
The authors estimate that average founder shares at exit fall about 25% under accrual-based capital gains taxation relative to realization-based taxation, as advance taxation forces additional share sales before exit.
Accrual-based taxation raises the fraction of entrepreneurs with positive payoffs from around 16% to nearly 47%, providing insurance through tax credits to founders whose ventures fail.
In the authors' career-choice framework, less risk-averse founders favor realization-based taxes while more risk-averse founders prefer accrual-based taxes, with the insurance channel's strength depending on the skewed payoff distribution and loss-provision design.
Related Articles:
Killer Incentives: Status Competition and Pilot Performance during World War II— Analysis of over 5,000 German World War II fighter pilots finds that public peer recognition was associated with higher victory scores among skilled pilots without higher mortality, while average pilots gained little in victories but died at higher rates. The authors conclude status-based awards can have uneven effects in high-risk settings.
One Hundred Years in the U.S. Stock Markets— Over a century, U.S. publicly traded stocks generated roughly $91tn in shareholder wealth enhancement, with returns strongly positively skewed and dominated by a relatively small number of high-performing firms. Because most possible outcomes fall below the mean in a skewed distribution, the authors argue financial planning should focus on median outcomes or the full distribution.
Never Enough: Dynamic Status Incentives in Organizations— Data on over 5,000 German fighter pilots show performance rose markedly as pilots approached the eligibility threshold for each medal in a tiered awards ladder and slumped immediately after receiving it, with the effect repeating at each successive rung. The authors estimate the ladder added 3,000–5,000 aerial victories, 5–10% of the total.
AI Summary.US technology and finance firms offer new engineering graduates higher pay and greater prestige than large industrial companies like Boeing, whereas engineering graduates in France, Japan, China, and Germany take industrial jobs such as Airbus at a fraction of US engineering pay. The author argues this talent pull is a genuine obstacle to re-industrializing the US.
Louis-Vincent GaveGavekal
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Louis-Vincent Gave notes that while “Airbus can hire the cream of the French, or even European, crop,” established American industrial firms like Boeing may struggle to attract engineering talent due to competition from startups and Wall Street.
Does tech and finance pay pull engineering talent away from US industry?
Core argument: Engineering graduates in France, Japan, China, and Germany take jobs at industrial firms such as Airbus for a fraction of US engineering pay, while US graduates target Google, Microsoft, Meta, Goldman Sachs, or Morgan Stanley.
Shifts in staff compensation stacked the decks against Boeing and other big US industrial companies—at least relative to other industrial powers. In France, for example, graduates of engineering schools will gladly take jobs at Airbus and be paid a fraction of what an engineer makes in the US. The same is true in Japan, China, and Germany. In the US, however, a new engineering graduate today likely has his or her sights on a job at Google, Microsoft, or Meta, or alternatively at Goldman Sachs or Morgan Stanley. Such jobs offer better pay and more social prestige, along with the promise of stock options and potential riches. Now the SpaceX IPO has turned this dial all the way up to 11. In short, for the past 15 years or so, the US tech industry has sucked most of the oxygen out of the room. This is true for capital allocation and stock market performance, and it follows that the same has also been true for human resources and talent acquisition. This seems like a genuine hurdle to today’s widespread hopes of re-industrializing the US.
Takeaways by Macro Roundup® AI
Engineering graduates in France, Japan, China, and Germany take jobs at industrial firms such as Airbus for a fraction of US engineering pay, while US graduates target Google, Microsoft, Meta, Goldman Sachs, or Morgan Stanley.
US technology and finance jobs offer better pay and more social prestige than industrial employers, along with stock options and the promise of riches, shifting compensation against Boeing and other large US industrial companies.
The US tech industry has drawn most capital allocation, stock market performance, and talent for roughly 15 years, and the SpaceX IPO intensifies that pull, posing a hurdle to hopes of re-industrializing the US.
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Military Officer Quality in the All-Volunteer Force— The authors find a steady decline in U.S. Marine Corps officers' General Classification Test scores, which is statistically associated with the expansion of college attendance and explains 96% of the measured change. They also find a positive association between African American officers and mean test scores, arguing affirmative action has not lowered officer quality.
Boeing Battles Brain Drain As Engineers Chase the Allure of Space— The average tenure of a Boeing engineer has fallen from 16.4 years to 12.6 years, according to data from the union representing 12,000 Boeing engineers, with tenure shortening in almost every age bracket. Analysts, recruiters and union officials describe this "brain drain" as a drag on operations that could make launching a new plane harder.
Speed Can Reindustrialize America— The US has a relative surplus of low-paid hourly workers and a shortage of high-skill workers, so many less productive US manufacturers could buy a robot but could not attract the talent to program it. China faces the opposite conditions, with underemployed STEM graduates, residency rules complicating coastal factory hiring, and robot programmers earning a fraction of US wages.
AI Summary.Europe trains more engineering graduates per capita than China and more STEM PhDs than any region outside the United States, yet the only EU-born companies to reach $100bn market value in the past fifty years, Spotify and BioNTech, listed on US exchanges. Europe captures 6% of global AI startup funding versus 61% for the United States.
Mario KeputaSocial Science Research Network
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Despite top STEM talent and high savings, Europe captures just 6% of AI funding and lacks trillion-dollar firms. Between 2008 and 2021, ~30% of EU-founded unicorns relocated abroad, largely to the US, seeking deeper liquidity, higher valuations, and pro-growth regulation.
Why does Europe's world-class STEM talent fail to produce giant companies?
Core argument: Europe captures just 6% of global AI startup funding, versus 61% for the United States and 17% for China, despite training more engineering graduates per capita than China and more STEM PhDs than any region outside the U.S.
Europe produces more engineering graduates per capita than China. It trains more PhDs in STEM fields than any region outside the United States. Europe's universities rank among the world's best in dozens of disciplines. Europe's household savings rate exceeds that of America. Europe's research output, measured by publications and citations, is world-class. And yet the only EU-born companies to reach a market capitalisation of $100 billion in the past fifty years, Spotify and BioNTech, did so on the NYSE and Nasdaq respectively. Both chose American exchanges over European ones. None of the world's trillion-dollar companies is European. Europe captures just 6% of global AI startup funding, compared with 61% for the United States and 17% for China. Between 2008 and 2021, nearly 30% of European-founded unicorns relocated their headquarters abroad, overwhelmingly to the United States. They did not leave for the weather. They left because U.S. capital markets offered deeper liquidity, broader analyst coverage, higher valuations, and a regulatory environment designed for growth.
Takeaways by Macro Roundup® AI
Europe captures just 6% of global AI startup funding, versus 61% for the United States and 17% for China, despite training more engineering graduates per capita than China and more STEM PhDs than any region outside the U.S.
The only EU-born companies to reach $100bn market capitalisation in the past fifty years, Spotify and BioNTech, listed on the NYSE and Nasdaq respectively, and none of the world's trillion-dollar companies is European.
Nearly 30% of European-founded unicorns relocated their headquarters abroad between 2008 and 2021, overwhelmingly to the United States, where capital markets offered deeper liquidity, broader analyst coverage, higher valuations, and a regulatory environment designed for growth.
Related Articles:
Ed Conard Debates Furman On “The Expected Value of Risk Taking”— A debate on U.S. fiscal policy argues that spending increases, rather than the tax increases needed to fund them, slow growth, and that higher taxes would reduce the expected value of America's innovative risk-taking. The argument holds that cutting debt below 100% of GDP is critical.
Do Adults Have the Skills They Need to Thrive in a Changing World?— An international assessment of adult skills describes numeracy proficiency levels ranging from counting objects and adding small whole numbers at the lowest level, to extracting information from tables and graphs and performing basic arithmetic with money and percentages at Level 1, up to analysing complex mathematical information and critically evaluating whether data support a claim at Level 5.
The Future of European Competitiveness – A Competitiveness Strategy for Europe— A European Union competitiveness report attributes the EU's labour productivity growth gap with the US largely to weaker activity in information and communications technology and large-scale digital services; excluding main ICT sectors, EU productivity was broadly at par with the US from 2000-2019. It estimates Europe's investment share must rise about 5 percentage points of GDP.
AI Summary.The authors estimate that billionaire departures tied to a proposed California wealth tax would cut state income, sales, and other tax collections by $3.53bn–$4.49bn a year, with a $2.77bn lower bound based only on the nine publicly identified emigres. The analysis classifies 212 California billionaires by wealth source, assuming departures retain different shares of California-source income.
Jared WalczakCalifornia Tax Foundation
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Walczak estimates the 2026 California Billionaire Tax Act would reduce annual state tax revenues by ~$3.53B to $4.49B due to billionaire departures and associated spillovers. The NPV of these ongoing losses would be several times the wealth tax revenue.
How much state tax revenue would billionaire departures cost annually?
Core argument: The authors estimate the 2026 California Billionaire Tax Act would cut state income, sales, and other tax collections by $3.53 billion to $4.49 billion per year under their primary billionaire-departure scenarios.
This paper estimates ongoing annual reductions in state tax revenue under scenarios based on announced and anticipated billionaire departures. The analysis considers direct impacts on individual income and, to a much lesser extent, sales tax collections, along with spillover effects. We identify 212 California billionaires using the Forbes billionaire list and classify each based on whether their wealth is primarily held in publicly traded equity, a privately held operating business, financial fund management, or a diversified mix of sources. We use classification-specific assumptions of income loss subject to a given billionaire’s departure, assuming that only 5% of public founders’ income will remain California source after a departure, compared to 55 percent for private operating business owners, 35% for financial management, and 15% for diversified wealth. Under our primary scenarios, the wealth tax yields ongoing reductions of $3.53 billion to $4.49 billion per year in income, sales, and other tax collections. Calculations based exclusively on the nine publicly identified billionaire emigres yield $2.77 billion in recurring revenue loss and can be regarded as a lower bound. Actual out-migration almost certainly already exceeds that which has been publicly reported, and continued departures should be expected should the initiative advance.
Takeaways by Macro Roundup® AI
The authors estimate the 2026 California Billionaire Tax Act would cut state income, sales, and other tax collections by $3.53 billion to $4.49 billion per year under their primary billionaire-departure scenarios.
Limiting the calculation to the nine publicly identified billionaire emigres yields $2.77 billion in recurring revenue loss, which the authors regard as a lower bound.
The analysis classifies 212 California billionaires from the Forbes billionaire list and assumes post-departure California-source income of 5% for public founders, 55% for private operating business owners, 35% for financial management, and 15% for diversified wealth.
What’s Missing in the Fed’s Data about Ultrarich Portfolios— The Federal Reserve's Distribution of Financial Accounts defines "private business" narrowly as proprietor's equity in noncorporate, nonfinancial businesses, excluding S-corporations, other private corporations, and private equity and hedge fund partnerships, which are lumped into "corporate equities." The Survey of Consumer Finances instead shows private business is roughly 45–50% of top 0.1% wealth.
Ed Conard Debates Furman On “The Expected Value of Risk Taking”— A debate on U.S. fiscal policy argues that spending increases, rather than the tax increases needed to fund them, slow growth, and that higher taxes would reduce the expected value of America's innovative risk-taking. The argument holds that cutting debt below 100% of GDP is critical.
AI Summary.About half of the 1990s gap between American and European hours worked had reversed by the end of the 2010s. The authors estimate US hours per person declined after the 2000s because of rising benefits for the non-employed—especially health benefits like Medicaid—while non-US hours rose with higher wages and lower work costs.
Serdar Birinci, Loukas Karabarbounis, and Kurt SeeNational Bureau of Economic Research
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Work hours of Americans and Europeans were ~ equal in the early 1970s, but by the mid 1990s, Europeans worked much less than Americans. Half of this hours gap had vanished by 2019. The drop in US hours was collinear with an ~ doubling of Medicaid enrollment.
Why has the gap in hours worked between Americans and others narrowed?
Core argument: About half of the U.S.–Europe gap in hours worked that opened by the 1990s had reversed by the end of the 2010s, with the convergence concentrated on the extensive margin and observed for both men and women.
Whereas Americans and Europeans were working roughly the same hours in the early 1970s, by the mid 1990s, Americans were working much more than Europeans. We update Prescott’s observations on hours worked for advanced economies and document that about half of the hours gap in the 1990s has reversed by the end of the 2010s. While the decline in the U.S. hours is well documented in the literature, the increase in non-U.S. hours in the past two decades, both relative to the United States and in absolute levels, has not yet been analyzed systematically. The convergence in hours worked is concentrated on the extensive margin and is observed for both men and women. We offer a comparative study on the convergence of hours worked and ask, “Why do Americans no longer work so much more than non-Americans?” [Employing both nonstructural correlation analysis and a structural model of labor supply, we suggest that] U.S. hours per person declined after the 2000s because of the rise of benefits provided to the non-employed. Among these benefits, we find the most important role for health benefits and, in particular, Medicaid. For non-U.S. countries, the rise of labor supply is generally accounted for by a rise of wages and falling fixed costs and disutility of work.
Takeaways by Macro Roundup® AI
About half of the U.S.–Europe gap in hours worked that opened by the 1990s had reversed by the end of the 2010s, with the convergence concentrated on the extensive margin and observed for both men and women.
The authors attribute the post-2000s decline in U.S. hours per person to the rise of benefits provided to the non-employed, assigning the most important role to health benefits and, in particular, Medicaid.
Rising labor supply outside the United States is generally accounted for by higher wages and falling fixed costs and disutility of work, according to the authors' correlation analysis and structural model of labor supply.
Related Articles:
Hours Worked and Lifetime Earnings Inequality— US survey data show large differences in lifetime hours of work, and a calibrated model of labor supply and human capital accumulation implies that nearly 20% of the variance in lifetime earnings is accounted for by these differences, with 90% of that effect due to heterogeneity in preferences for work.
Comparing EU-to-US Output Per Hour— European Union output per hour worked has risen from about 72% of the US level in the early 2000s to about 82%. The EU's 28% shortfall in GDP per capita versus the US is roughly two-thirds attributable to lower output per hour and one-third to fewer hours worked; Germany's shortfall reflects fewer hours alone.
Europeans ‘Less Hard-Working’ Than Americans, Says Norway Oil Fund Boss— Norway's sovereign wealth fund argues that American companies are outpacing European rivals on innovation and technology because the US more readily accepts failure and risk and because Americans work harder and are more ambitious. US shares now make up almost half of the fund's equity holdings, up from 32% a decade earlier, while UK holdings fell from 15% to 6%.
