Why national income tells us very little about our quality of life

Looking at national income per head, even when adjusted for differences in price levels, is a simplistic way to compare living standards across different countries. A huge range of factors affect quality of life, including the environment, stability and security, and climate. A key issue across societies is to consider the length of the working day, week or year, and how much time off people have.

While in the short-term employers have a substantial say over how long people work, the preferences of workers exert very significant influence over the longer term. In fully-employed economies like Ireland businesses who want to hire or retain workers need to meet their staffs’ expectations or they will go elsewhere. So in the long run the hours worked in different societies come to reflect their population’s preferences.

There is a big difference between the average hours worked by US and by EU workers, with on average over 10 per cent more hours put in by American employees. In Europe we take more days holidays, with EU rules mandating a minimum of 20 days paid leave a year; public holidays are on top of that. The shorter working year accounts for up to half the difference between US and EU annual hours, the rest being explained by longer working weeks in the US.

However, the percentage of population at work is also lower in the EU than the US. Partly it’s because of an older population, partly it’s because of higher unemployment in the EU, with some dysfunctional labour markets.

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While national income per person in the US is over a third higher than in the EU, the gap falls to just over 10 per cent when measured in terms of output per hour worked. Thus a major part of the difference in measured productivity between the continents reflects differences in lifestyle and working time rather than the underlying efficiency and sophistication of the economies.

Ireland’s average working week of 32 hours is 2 per cent higher than the EU norm. Back in 2000 that gap had been 10 per cent, but by 2007 we had become more European in our desire for free time. Recently public sector workers chose to negotiate a reversion to the lower hours worked before the financial crash rather than looking for higher wages and longer hours.

However, the gap in hours worked between different EU members is wider than the gap between the EU and the US. To some extent the difference in working time across the EU also reflects the share of part-time working in different countries. Netherlands, Germany and Denmark have a higher than average share of part-time workers so that working hours are below the EU average in these countries. By contrast, those living in poorer countries in southern and eastern Europe tend to work longer hours.

In Ireland a slightly higher than average share work part-time. However, three-quarters of those working part-time say that they would not like to work longer hours. In many case they are students who, for obvious reasons, don’t want a full-time job. Combining work and caring roles is another factor, as are health conditions affecting stamina or fatigue.

While the large gap in national income per person between the US and Europe has narrowed since the second World War, it has made little progress since the financial crash. However, the picture is rather different if we look at national income per hour worked. Although across the EU as a whole productivity per hour worked is lower than the US, for Ireland France and Germany it is actually 10 per cent higher than across the Atlantic.

Europe has rather different attitudes to working time and income, and the trade-offs between them, than the US. Culturally, Europeans generally prefer to have longer holidays rather than higher earnings for a longer working year. EU and national legislation tend to codify such preferences, not to set them.

Here in Ireland while the pandemic has shaken up working arrangements, employers report that overall working time in 2022 is back to where it was in 2019. However there is some divergence between the working hours reported by employers and those by workers themselves.

Up to 2019 self-reported working hours were a bit longer than recorded by employers. But in 2022 this had reversed – individuals reported working 2 per cent fewer hours than did employers. Hybrid working may be the reason. People may tend to include some of their commuting time in the working hours they report, but with more days worked at home perceived working time will have fallen.