Me not working hard?

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 US 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 US. But a comparison of GDP per hour reveals a very different picture, Singapore has a GDP per hour which is 32% lower than that of the US. 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

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

In the table above I compare Korea, Japan and Singapore to the US and as we move from the first column to the second and third columns the relative position of these countries worsens relative to the US. Singapore is the most extreme example with GDP per capita of 125% of the US level but GDP per hour as low as 68% of the US 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 to the US:

	Employment to Population	Average Annual Hours
Korea	49%	2289
Japan	50%	1726
Singapore	61%	2409
United States	45%	1758

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 US. 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 US 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

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

The most visible case is France, which has a much lower GDP per capita than the US 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 US 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.

Antonio Fatás