Me Not Working Hard?

by: Antonio Fatas

Reading a footnote from a blog post written by Noah Smith comparing GDP per capita across countries led me to look back at statistics on how labor markets and effort matters for cross-country comparisons of GDP per capita. The footnote was about one of the most successful Asian economies, Singapore, with GDP per capita clearly above that of the U.S. when adjusted for PPP.

Using data provided by the U.S. Bureau of Labor Statistics, in 2011 Singapore has a GDP per capita which is about 25% higher than that of the U.S. But a comparison of GDP per hour reveals a very different picture. Singapore has a GDP per hour that is 32% lower than that of the U.S. Other Asian countries display a similar pattern.

GDP

Per capita

GDP

Per worker

GDP

Per hour

Korea

63

58

45

Japan

71

64

66

Singapore

126

93

68

United States

100

100

100

Click to enlarge

Levels relative to the U.S. Year 2011. Source: Bureau of Labor Statistics.

In the table above I compare Korea, Japan and Singapore to the U.S. and as we move from the first column to the second and third columns the relative position of these countries worsens relative to the U.S. Singapore is the most extreme example with GDP per capita of 125% of the U.S. level but GDP per hour as low as 68% of the U.S. level. How can we explain this difference? How hard do the Singaporeans work? There are two things that matter:

  1. The ratio of employment to population, which is affected by both demographics and labor force participation. This explains the change from the first to the second column.
  2. The average number of hours worked. This explains the difference between columns 2 and 3.

Here is the labor market data for these three Asian countries in comparison with the U.S:

Employment to Population

Average Annual Hours

Korea

49%

2289

Japan

50%

1726

Singapore

61%

2409

United States

45%

1758

Click to enlarge

Year 2011. Source: Bureau of Labor Statistics.

In Korea and Singapore both ratios point in the same direction: employment to population as well as hours worked are higher than in the U.S. In the case of Japan number of hours worked is similar but the employment to population ratio is also higher. The differences are very large, more so in Singapore, and they explain the high levels of GDP per capita relative to GDP per hour worked.

Some European countries are on the other side of this comparison, with lower effort than the U.S. as measured by employment or number of hours. The table below shows some of these countries as well as Canada and Australia.

GDP

Per capita

GDP

Per worker

GDP

Per hour

Germany

81

73

91

Italy

66

74

73

Australia

86

75

77

Canada

84

75

77

Spain

67

76

79

Sweden

86

80

85

France

73

80

95

United States

100

100

100

Click to enlarge

Levels relative to the U.S. Year 2011. Source: Bureau of Labor Statistics.

The most visible case is France, which has a much lower GDP per capita than the U.S. but a very similar level of GDP per hour (the French are very productive...when they work). Another interesting comparison is Spain and Canada where we can see a slightly higher number for GDP per hour in Spain even if there is a significant difference in favor of Canada when it comes to GDP per capita. Northern European countries (like Sweden) look very close to the U.S. when it comes to labor markets so when you move from one column to another you see very little change in their relative position.

All of these numbers make clear that looking at GDP per capita to assess growth and convergence can be misleading in the presence of significant differences in labor markets.

A final caveat: GDP per hour is not a perfect measure of productivity either. It is ignoring the productivity of other factors and it might give a distorted picture of productivity when there are large variations in the sectoral composition of GDP -- a sector-by-sector comparison would be a much better way to assess true differences in technology.