Working Hours and Productivity in the United States

When East Asian countries grew at record rates, some articles attributed this to factor accumulation (eg Krugman 1994). Indeed, Japan and South Korea reinvested a lot of their output and also benefited from the growing working-age population. The data showed that factor accumulation actually went along with productivity growth, so these economies did have “genuine” improvements in the end.

Now, twenty years later, the same can be said about the United States. But this time, instead of capital, labor input drives economic growth. In 1950, the countries that would be called G7 looked this way (all data from PWT8, OECD):

kpw_lpw_1950

US workers had relatively short working hours and much more equipment than their colleagues in other countries. In 2010, the picture looks different:

kpw_lpw_2010

Hours declined rapidly in all countries but the United States. To feel the difference:

hour_deu_usa

With the typical disclaimer about comparing hours across economies, I’d rather emphasize the dynamics of changes, instead of comparing countries directly. The growth paths for regional leaders:

kpw_lpw_three

These lines just smooth annual observations along 1950–2011. I also added GDP per worker under the markers.

Overall, if German firms cut hours by 40% since 1950, US firms cut only by 10%. Working hours stopped declining in the US around 1980 (perhaps to offset stagnating real incomes). Regardless of which counterfactual you like more (the US trend before 1980 or Germany’s), it implies a substantial difference in output — fueled by labor input, just as capital input helped East Asian economies decades ago.

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