August 1, 2005

#187: Let's work 30 hours a week, and zoom past the French...

P. Krugman

KRUGMAN TRUTH SQUAD

In French Family Values Paul Krugman makes an analytical error so inexcusable that it borders on incompetence. International comparisons of productivity are difficult enough under the best of circumstances. But to cite data showing “productivity in France – G.D.P. per hours worked – is actually a bit higher than in the United States” is flat out irresponsible. The reasons are simple. To make productivity comparisons on an apple to apple basis two crucial data adjustments have to be made. One is for the employment rate. A country with a lesser employment rate (more unemployment) will benefit in higher measured productivity because those unemployed are, in general, less productive. The other is for hours worked. Productivity declines with hours worked due to fatigue and other attentional factors. Thus, in general, measured productivity in a country where longer hours are worked will be relatively less at the margin. For both of these reasons, comparison countries must be put on an equal footing with regard to employment rates and hours worked before making the comparisons.

This is a well researched area of economics and there is little dispute about either the principles or the findings. But Krugman does not even acknowledge that this subject as an issue. For those who would like to dig into this further we provide this link to one such study. We chose Gilbert Cette because he is French and works out of the Banque de France. But there are many other studies as his reference page documents.

After adjusting for the “structural” discrepancies discussed above, Cette’s conclusions are as follows:

“We then see that the level of the ‘structural’ hourly productivity is higher in the United States than anywhere else, which suggests that the USA is still setting the technical efficiency frontier.”

“Following the Second World War, the growth of hourly labour productivity was faster in France and Japan than it was in the United States. However, the roles were reversed in the nineteen-nineties. This happened before France and Japan had fully caught up to the United States, since this analysis shows that ‘structural’ hourly labour productivity appears to be higher in the United States than it is in the other industrialised countries. This development has widened the already wide gap between economic living standards as measured by per capita GDP and is making Europe increasingly poor compared to the United States”

Krugman may have reached the point where he can say just about anything with little or no rebuttal. Those competent to evaluate him don’t waste time reading him anymore and his regular readers believe anything he says.

[The Truth Squad is a group of economists who have long marveled at the writings of Paul Krugman. The Squad Reports are synopses of their discussions. ]

Posted by John Weidner at August 1, 2005 8:51 AM
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