Arnold Kling

Outbreaks of Laziness?

Arnold Kling, Great Questions of Economics
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Almost 25 years ago, economists were embroiled in a debate over the extent to which unemployment was involuntary. I recall that Franco Modigliani fumed, "What was the Great Depression--a spontaneous outbreak of laziness?"

In the American Economic Review that came in the mail yesterday, Edward Prescott offers such a theory.

France is currently depressed by about 30 percent relative to the United States with the labor factor accounting for nearly all the time is about 30 percent lower in France than it is in the United States.

Prescott looks at output per working-age person as the indicator of macroeconomic performance. This depends on hours worked per working-age person, capital per working-age person, and a productivity factor. What he is saying is that in France, the shortfall is in hours worked per working-age person--an outbreak of laziness, if you will. He says that this can be accounted for by high marginal tax rates, which discourage market-based work and consumption. Think of a situation in which sales and income taxes are so high that you are better off puttering around the house than working more hours and spending income on goods and services produced by others.

Conversely, Prescott looks at Japan and does not see a shortfall of hours worked per working-age person. Instead, he sees low productivity relative to hours worked and the amount of capital. That is, the Japanese economy is very inefficient.

Discussion Question. Do you think that it is possible for unemployment to be as high as 25 precent of the labor force (as it did in the U.S. in the 1930's) because people choose to putter around the house?

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