In a recent blog post, Noah Smith points to some graphs posted by my old friend David Andolfatto. David's graphs show a widening gap between Canadian and US labour force participation rates, with the Canadian rate now outstripping the US rate by some margin.
David - having learnt the hard way what happens to people who give their opinions too freely - is careful not to speculate on what might be behind these trends. Noah Smith has no such reservations. His interpretation of these graphs is that "young and prime-age Canadians work more than do their American counterparts."
In fact, the graphs show no such thing. Let me just list all of the things wrong with seeing a difference in labour force participation rates and concluding that Canadians "work more."
First, the labour force participation rate is equal to the percentage of people employed plus the percentage of people unemployed. A higher labour force participation rate does not necessarily mean that more people are employed; it could mean that more people are unemployed.
"Unemployment" is a word with a precise technical meaning. Typically a person is considered to be unemployed if they are available, and looking, for work. However the exact definition of "available for work" and "looking for work" varies from country to country. Thus unemployment rates (and hence participation rates) are not always strictly comparable.
However, even if the Canadian employment rate was higher than the US employment rate, one still could not conclude that people are working harder. The total amount of work in the economy is equal to the number of people working times the average hours worked. The average hours that people work in Canada are lower than the average hours in the US. There are lots of reasons why this might be so:
- In the US, some employers provide health insurance, which creates large fixed costs per worker. For any firm providing health insurance for its workers, it is cheaper to hire fewer workers and have them work long hours as opposed to hiring more workers and having them work fewer hours.
- In the US, illegal immigration has brought large numbers of unskilled workers into the country, driving down the cost of domestic help. I don't know of any paper that proves this is a reason why Americans work longer hours, but it is an explanation that gets thrown around by Canadian economists over drinks.
- In the US, there is less of a social safety net, and less security of unemployment, due to lower rates of unionization/different labour laws. If I had no job security, I'd work longer hours too.
- Quebec. For some reason the Quebecois work shorter hours than other Canadians, pulling down the Canadian average.
- In Canada, taxes are, for the most part, individually based. In a Canadian couple, the "secondary earner" typically faces a lower marginal tax rate than the "primary earner", which creates an incentive for both partners to participate in the labour market. In the US, the tax unit is the married couple. In the US, it makes sense for whoever has the higher wage rate to increase their labour effort (payroll taxes may also matter here too).
There are other reasons to be careful about drawing any conclusions about how hard people work from data on labour force participation rates: the very high incarceration rates in the US have a measurable impact on unemployment rates, especially for young males. Canada and the US differ in terms of participation in higher education, too, which also impacts unemployment and employment rates.
I wish I could point to a nice reference for all of this, but I can't. This 2009 OECD study gives a general intro to the subject of hours worked (here), and Craig Riddell wrote some nice papers a while ago that pick apart a bunch of differences between the Canadian and US labour markets: e.g. here.