The Nobel Prize-winning economist Edward C. Prescott has pointed to sharp increases in Europe’s tax rates since 1970—higher taxes give workers less of an incentive to work extra hours. But taxes aren’t high enough to explain Europeans’ new taste for free time. A more plausible explanation was put forward recently by the economists Alberto Alesina, Edward Glaeser, and Bruce Sacerdote: European labor unions are far more powerful and European labor markets are far more tightly regulated than their American counterparts.Interestingly, in the paper by Glaeser, Alesina, and Sacerdote, the authors point out that the Europeans are very happy (based on life satisfaction indices taken from Eurobarometers data) to work less even though they have less income. Indeed, the authors seem to believe that labor regulation may actually be a good thing, but won't quite come out and say it explicitly:
A very hard question to answer is whether labor unions and labor regulation introduce distortions that reduce welfare or whether they are a way of coordinating on a more desirable equilibrium with fewer hours worked. Since answering this question is difficult and the question is heavily politically charged, we won't be surprised if the debate will continue for a long time with heated tones.They wrote the paper last March. I wonder if they would get the same results now after the riots in France and Denmark?