ARDA TUNCTURK – NOVEMBER 17TH, 2023
EDITOR: FELIX ZHANG
Work. Work. And more work. Your boss calls you as the stacks of paper on your desk grow even bigger. You feel as if there is a mountain of unconquerable work, and on top of all of this, you have been burned out by the fact that you’ve gotten zero days in paid time off. You ask yourself how someone can live like this. Therefore, you wonder how those in Europe have it. Surely, with the might of the American economy, there is no way it is better in Europe? Well, one could say it is. While you are working at your desk for hours on end, from the early hours of the morning to the late hours of the night, your one friend who works in the Eurozone is currently relaxing on a beach in Portugal, living their best life, not having to worry about any deadlines. This is the stark difference in working culture between Europe and the U.S.
Paid Time Off
One aspect where working culture differs between the European Union and the U.S. is that the EU has a mandated four-week paid vacation period across all EU countries, whereas the same is not true in the U.S. Furthermore, the U.S. is the only “developed country” — a country with, among other factors, a high GDP per capita and lower income inequality relative to other countries — that does not have any paid time off. In addition to the mandatory four weeks of paid vacation in the EU, many European countries, such as France, the U.K., and Denmark, have mandatory paid vacations that are five weeks or longer, with the U.K. requiring 28 days of paid vacation and France requiring 30 days. Comparatively, in the U.S., there is no mandated paid time off (PTO), and, according to a Forbes article, 31% of U.S. employees do not have access to any PTO. The same article also found that the average American worker gets just 11 days of paid vacation per year and 7.6 days of paid holidays, with the average American worker using 17.4 days of PTO each year.
The number of years a worker has been with a given company also impacts time off. For example, on average, workers with 3 years of employment get 10 days off in paid vacation, while workers with 15 years of employment get 15 days off. After 15 years, there is typically only a change of one more day off for an additional 10 years worked. Additionally, some companies offer unlimited paid time off, which is unlimited vacation time for employees as long as they keep up with their workload. While mainly provided by tech companies, many firms will offer unlimited PTO to bring in more talent (72% of employees want unlimited PTO, according to MetLife) and signal trust in their employees. Most workers with unlimited PTO only take 10 days off, and 42% even report working during vacations. Employees with unlimited PTO report the best work-life balance, even if they are only taking 10 days off per year. This suggests that rather than taking a lot of time off, some workers enjoy and prefer the flexibility to take more days in paid vacation, even if they do not end up doing so. Another explanation for this trend is that employees still have to request time off from their manager, even if they do have unlimited PTO, which may cause employees to be more conservative with their PTO so as not to appear “lazy” or “undedicated.”
While Americans have less PTO compared to their European counterparts, Americans, on average, do not use 6.5 days of their PTO, equating to 765 million unused paid vacation days. Moreover, the region of the U.S. in which an employee works also determines PTO. While the Northeast has an average of 11.4 days of vacation, the West has 9.4 days, and the South and Midwest have 8.4 and 8.5 vacation days, respectively. In addition, paid time off also changes depending on the sector a worker is in. On the one hand, government workers have 11 annual mandatory paid holidays, on top of them being able to take additional days off in paid vacation. On the other hand, for the private sector, a report by the Bureau of Labor Statistics finds that financiers, tech workers, and those who work in manufacturing get the most time off, whereas leisure and hospitality workers have the least access to paid vacation time out of all private sector jobs.
GDP and Productivity
In regards to GDP and spending, there are a few interesting differences between the U.S. and the Eurozone countries. According to the International Monetary Fund, government spending in the U.S. represents a smaller percentage of its GDP than nearly any of its European counterparts. However, the IMF also finds that the U.S. has more general government gross debt as a percentage of GDP than any other Eurozone country, barring Italy. The main explanation for this is that the U.S. is collecting significantly less federal tax revenue as a percentage of GDP than Europe does. For example, the EU Commission finds that, as a ratio to GDP, 2021 tax revenue was equivalent to 41.7% of GDP in the European Union. For that same year, CEIC Data finds that the U.S. collected tax revenues equal to only 17.6% of GDP. To put all of this in simple terms: even if the EU is spending more in percentage terms, which enables a fair comparison of government behavior based on different country sizes and GDPs, it also collects more tax revenues in percentage terms relative to the U.S, which allows it to have a lower debt percentage than the U.S.
A study by the Organization for Economic Cooperation and Development (OECD) found that many EU countries, such as France, Germany, and Sweden, among others, have higher social spending as a share of GDP, where social expenditures refer to benefits for low-income households, the elderly, disabled persons, the sick, unemployed, or young persons. This suggests a difference in economic thought between EU governments and the U.S. Many EU countries spend more government revenue on social welfare than the U.S. does, which might be a reason why there are PTO differences between the U.S. and the EU. While government spending does not inherently equate to PTO, there might exist an omitted social variable where countries more likely to provide social benefits are also the ones more likely to pass legislation mandating a minimum paid vacation time.
One important economic question is the relationship between additional PTO and productivity. According to a paper by Feenstra et al. (2015), America has either slightly higher hourly productivity or significantly higher hourly productivity relative to three of Europe and the world’s most developed economies: Germany, the U.K., and France. The measure of productivity that was used in the paper is GDP per hour worked, which adjusts for differences in inflation and costs of living between countries, which makes sure that currency values or prices are not the main determinant of GDP. Instead, the intrinsic value of goods and services produced determines GDP. This allows for a fair comparison between countries. It is important to note that among all three of these European countries, the PTO is five weeks or more, except for Germany, which gives “only” four weeks of mandatory PTO. Therefore, there seems to be no correlation between the number of weeks of paid vacation and worker productivity, which seems to disprove the doctrine that more PTO should increase workers’ productivity, as they are given more time off to rest and recuperate.
In reality, the differences in worker productivity seem to result from specific traits independent of vacation time. For example, an NBER paper by Robert J. Gordon and Hassan Sayed finds that a possible explanation for why the U.S. has higher labor productivity than most European countries is that the U.S. invests more in information and communications technology than the EU-10 countries, which allows it to increase the productivity of its production cycle. This makes the American economy more efficient over time, as growth in productivity starts to add up over time. In addition, a highly cited paper by Hall and Jones (1999) finds a correlation between government quality plus openness to trade and average labor productivity, suggesting that the laws and trade policies of a country could have a non-negative effect on labor productivity for different countries.
Work Culture Differences
While hourly productivity seems to be the same, if not higher, in the U.S., this is not the only measure of economic success and overall well-being. There are factors other than paid time off and productivity that make up the discussion on differences in work cultures between the U.S. and Europe. One such example is a finding by the European Business Review that U.S. employees work more on average during their average workweek than their European counterparts, in addition to getting less PTO. As a work culture difference, American workers may have to go through their emails after their work shift, and can sometimes feel obligated to cut down on their lunchtime so that they do not feel like they are falling behind. However, not all is worse in the U.S. The same article cited research that found that the work culture in the U.S. is a lot friendlier than the one in Europe, in the sense that U.S. employees are much more warm, cordial, and friendly with one another, on top of being more cautious when being critical. This does not mean European culture is hostile, but rather that European employees are not as genial as Americans. Consequently, working in America is better from a teamwork perspective, which could be another possible explanation for the higher productivity in the U.S.
Additionally, values in the workplace differ when comparing Europe to North America. A study by the Harvard Business Review found that employees in North America value the traits of caring, purpose, and results more than their European counterparts. On the other hand, Europeans valued enjoyment, authority, safety, and order more than Americans. These differences point to a further gap in the work cultures of North American and European countries, and can spark a debate on how these differences can contribute to GDP and general worker satisfaction. However, which work environment is better is not as simple as one would expect. There are a plethora of differences in the employment cultures between the U.S. and Europe, and, ultimately, the decision on which culture is better depends on the specific person. Like many things in normative economics, there is no one right answer. It is truly complicated, with both individual and economy-wide goals and values playing an important role in an individual’s assessment.
There are also intriguing effects of the working cultures of these two geographical areas on their respective business cultures. A Forbes article highlights how investors in the U.S. are more likely to spend money on different start-ups and do not care about past failures, whereas European investors go into negotiations looking for reasons not to make deals and only make deals after all of their concerns are satisfied. Additionally, lenders in the U.S. generally provide more cash for start-ups than they will in Europe — with 5X EBITDA in the U.S. versus 3.5X EBITDA in Europe, where EBITDA is earnings before interest, taxes, depreciation, and amortization. Consequently, innovation and entrepreneurship are a lot more pronounced in the U.S., which enables more intellectual stimulation by providing entrepreneurs with the capital, resources, and knowledge to achieve their goals. Rather than being locked into working for a major company, workers in the U.S. have an easier path to receiving the backing of investors, allowing more innovation.
All of this is not to say that the U.S. or Europe is a better place to live in. The factors that workers value in their own work-life change depending on region, cultural background, identity, and other personal goals. Instead of focusing solely on traditional economic measures such as GDP per capita or productivity, it might be most important to focus on the goals and objectives of the people who keep the economy running — the individual worker.
Featured Image Source: Business Insider
Disclaimer: The views published in this journal are those of the individual authors or speakers and do not necessarily reflect the position or policy of Berkeley Economic Review staff, the Undergraduate Economics Association, the UC Berkeley Economics Department and faculty, or the University of California, Berkeley in general.