are we getting happier?

Filed in archive Global Economy on August 15, 2003

Richard Layard, an economics professor at the London School of Economics, reviewed the various evidence from psychology, sociology and his own discipline to get an overview what are the incentives for our behaviour.

One conclusion is especially striking and delivers new arguments to the old battle between Europeans and North Americans, what the better work style is:

"Conventional economic theory argues that taxation distorts the choice between leisure and income. Taxes reduce the incentive to work an extra hour rather than go home, or to put in extra effort in the hope of promotion. But Mr. Layard's argument implies that people have a tendency to work too much. Far from being distortionary, taxes are therefore desirable. He suggests a marginal tax rate of 30% to deal with the "pollution" that one person's extra income inflicts on others, and the same again for habituation. The total of 60% is a typical European level of taxation (taking both direct and indirect taxes into account).

His analysis suggests an alternative view: it is not that Europeans are working too little, but that Americans work too long, driven to choose more income instead of leisure by an urge to keep up with fellow co-workers."

It's a long pdf but very worthwhile for the weekend....