Structural transformation and the deterioration of European labor market outcomes

This paper examines hours worked in continental Europe and the United States from 1956 to 2003. The empirical work establishes two results. First, hours worked in Europe decline by almost 45 percent compared to the United States over this period. Second, this decline is almost entirely accounted for by the fact that Europe develops a much smaller market service sector than the United States. A simple model of time allocation is used to understand these patterns. I find that relative increases in taxes and technological catch-up can account for most of the differences between the European and American time allocations over this period.