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January 02, 2007

Comments

Chris Williams

Mmm . . . Shorter hours . . . Mmmm. . . .

This is a bad thing why exactly?

After all, the last really big downswing in working hours came with the first world war: overpaying canny GPs and EDS shareholders (while not ideal) certainly seems a far more attractive way of attaining this laudable goal. Not that I'm in favour of big government, mind, but like a stopped clock, it's not _all_ bad.

dearieme

But is that "explain" in the statistician's sense, or the logician's?

james higham

I think it depends somewhat on how well you can afford the tax [in your own mind], whether it's for a special reason e.g. a war effort, whether it conveys prestige by going to a new bracket and whether your outlook is that it goes to the common good. Over here, with a flat rate 13%, it's good not to have to pay more but the services are consequently woeful. Many would like to pay more if they could be sure they would go to their benefit indirectly.

chris

Chris - there's nothing wrong at all with working shorter hours, if the decision to do so arises from an expansion of your opportunities (as it did for me when I moved from the City to meeja). But there is something wrong if it's the result of a more constrained choice - and higher labour taxes constrain choice, in the sense of reducing the pay-offs to work.

Katherine

Well, I have to admit that I got lost about two paragraphs in there. Not exactly written for the layman, is it?

But I too have the same questions - (a) what does "explain" mean in this context and (b) if higher rates of taxes do indeed lead to (the same as "explain"?) shorter working hours, why is that a bad thing? If anyone could help me out here, I'd be grateful.

chris

Katherine - the report uses "explain" in the statistical sense that (in some countries) the fall in working hours fits what one would predict from the rise in taxes; this is not true in all countries, however - in the US, hours have risen even though tax changes predict a small fall.
As the authors' presumption (and mine) is that higher taxes deter work, the statistics generally fit the theory.
Shorter hours probably aren't a disaster, but they are inefficient. Think of it this way. Say you really like chocolate. But the price of chocolate rises gradually over time, relative to the price of bananas. Gradually, then, you cut down eating choccies and eat more bananas. This isn't a disaster - bananas are good for you. But you'd prefer that chocolate was cheaper.

AntiCitizenOne

James H,

In the UK more gets extorted from us and yet we still get crap "services".

Katherine

So what we're talking about wrt "explain" is correlation (rather than say, causation)? Forgive me if this is over-simplistic, but saying than "taxes go up and working hours go down" is not quite the same thing as "taxes go up which causes working hours to go down", is it?

David Gillies

Katherine: it's causative unless you disbelieve the idea of supply and demand. A activity that becomes less well remunerated will be substituted for by an activity that is more highly remunerated. 'Remuneration' in this sense means utility at the margin (and utility does not just mean cash). Make marginal utility smaller for working and people will substitute other activities, such as leisure. A hour spent working becomes less attractive relative to leisure. Ergo, people work fewer hours. All else being equal, higher incomes are better.

Actually, it's a little bit more complicated than that. Altering income has two antagonistic effects. If I am given a 10% payrise, then I am incentivised to work longer hours (people just lurve overtime). On the other hand, I am able to maintain my current standard of living by working fewer hours, so I can substitute leisure for work (rich people take more vacations). Conversely, if my income declines, I will have to work longer hours to maintain my standard of living, but I have less incentive to substitute work for leisure. The equilibrium between these two is where the actual effect is seen.

Mark Wadsworth

Can't we have a low-tax, short-hours culture?

Laurent GUERBY

http://www.thomaspalley.com/?p=61

"Factor #3: taxation policy. Not only has the economy favored profits and high-income groups, so too has tax policy. Thus, between 1978 and 1999 top marginal tax rates fell significantly in every OECD country for which statistics are available. In the U.S. the top rate fell from 70 to 39.6 percent. In the U.K. it fell from 83 to 40 percent. This has further increased incomes of high-income families, increasing their demand for financial assets. Corporate tax rates have also fallen, and a KPMG study documents that between 1993 and 2006 the average rate of corporation tax in 86 countries declined 29 percent. This has further increased the underlying value of equities."

Tax have been lowered everywhere and work hours have been lowered too.

Which way is the long term correlation?

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