Issues in the Comparison of Issues in the Comparison of Welfare Between EuropeWelfare Between Europe

and the United Statesand the United States

Robert J. GordonRobert J. GordonNAPW IV Conference,NAPW IV Conference,

NYU Stern School, New York CityNYU Stern School, New York CityKeynote Speech, June 28, 2006Keynote Speech, June 28, 2006

22

What are the Substantive What are the Substantive Issues?Issues?

““Why is Europe so Productive yet so Poor?”Why is Europe so Productive yet so Poor?” If Y/H caught up but Y/N languished, then the If Y/H caught up but Y/N languished, then the

superficial Answer is H/N has been fallingsuperficial Answer is H/N has been falling Why?Why?

– Blanchard (Blanchard (JEP, JEP, p. 4): “The main difference is p. 4): “The main difference is that Europe has used some of the increase in that Europe has used some of the increase in productivity to increase leisure rather than productivity to increase leisure rather than income, while the United States has done the income, while the United States has done the opposite.” opposite.”

Blanchard will be the straw man in this Blanchard will be the straw man in this discussion of more subtle interpretationsdiscussion of more subtle interpretations

33

Outline of the PaperOutline of the Paper Interpretation of falling Interpretation of falling relativerelative hours per hours per

capita in Europe vs. U. S.capita in Europe vs. U. S.– Major hypothesis: only a Major hypothesis: only a small portionsmall portion of of

falling relative hours per capita represents falling relative hours per capita represents welfare value of leisurewelfare value of leisure

– Addressing the current debatesAddressing the current debates Blanchard – it’s all the taste for leisure in EuropeBlanchard – it’s all the taste for leisure in Europe Prescott – taxes explain everythingPrescott – taxes explain everything Ljungvist-Sargent – welfare state is more importantLjungvist-Sargent – welfare state is more important Alesina – Politics and unionsAlesina – Politics and unions

An Independent Issue: Is GDP in US An Independent Issue: Is GDP in US overstated?overstated?

44

An Opposing ViewAn Opposing View

By definition the decline in Europe’s By definition the decline in Europe’s Y/N related to Y/H can be divided Y/N related to Y/H can be divided into:into:– Decline in relative H/E (35% 1960-95)Decline in relative H/E (35% 1960-95)– Decline in relative E/N (65% 1960-95)Decline in relative E/N (65% 1960-95)

Voluntary Leisure?Voluntary Leisure?– Some of decline in H/E is not voluntarySome of decline in H/E is not voluntary– Most of decline in E/N is not voluntaryMost of decline in E/N is not voluntary

55

Part #1: Part #1: What are the Data Issues?What are the Data Issues?

How to Compare Europe GDP vs. US GDPHow to Compare Europe GDP vs. US GDP Thanks to Peter Neary AER Dec 2004:Thanks to Peter Neary AER Dec 2004:

– Geary vs. EKS vs. “QUAIDS”Geary vs. EKS vs. “QUAIDS” Alternative methods of converting Ypc to Alternative methods of converting Ypc to

international PPPinternational PPP– Maddison and PWT use Geary-KhamisMaddison and PWT use Geary-Khamis– OECD and Eurostat use EKS (Eltetö, Köves, and OECD and Eurostat use EKS (Eltetö, Köves, and

Szulc), a multilateral extension of Fisher Szulc), a multilateral extension of Fisher “ideal”“ideal”

– Groningen web site gives bothGroningen web site gives both

66

An Operational ProcedureAn Operational Procedure

My calculations from Neary for EU-15 / US My calculations from Neary for EU-15 / US 19801980– Neary preferred QUAIDS = 74.3Neary preferred QUAIDS = 74.3– GK 71.4, EKS 77.5GK 71.4, EKS 77.5– Average Groningen GK and EKS = 74.4Average Groningen GK and EKS = 74.4

Hence all charts from here on use average Hence all charts from here on use average of GK & EKSof GK & EKS

This applies only to GDP, not to This applies only to GDP, not to population, hours, employment, labor population, hours, employment, labor forceforce

77

Other Data IssuesOther Data Issues

Hedonic Price Indexes: Data Hedonic Price Indexes: Data Noncomparable?Noncomparable?

Studies for Germany show difference Studies for Germany show difference in AAGR productivity of ~0.2in AAGR productivity of ~0.2

Some EU countries use hedonics for Some EU countries use hedonics for computers so overall EU difference computers so overall EU difference would be lesswould be less– Groningen data use US price computer Groningen data use US price computer

price deflators for all European countriesprice deflators for all European countries

88

A Preview of A Preview of ALL THESE ALL THESE SLIDESSLIDES

Slides of Europe vs. U. S., 1820-2004 for Slides of Europe vs. U. S., 1820-2004 for Y/N, 1870-2004 for Y/HY/N, 1870-2004 for Y/H

Maddison through 1950, ratio-linked to Maddison through 1950, ratio-linked to Groningen 1950+, average GK and EKSGroningen 1950+, average GK and EKS– Maddison piecewise loglinear trends. Years for Maddison piecewise loglinear trends. Years for

Y/N: 1820, 1870, 1913, 1923, 1929, 1941, Y/N: 1820, 1870, 1913, 1923, 1929, 1941, 19501950

– Y/H 1870, 1913, 1929, 1938, 1950Y/H 1870, 1913, 1929, 1938, 1950 Each slide, a wide angle back to the start, Each slide, a wide angle back to the start,

then a “close-up” 1960-2004then a “close-up” 1960-2004 Ratios, then Ratios of RatiosRatios, then Ratios of Ratios

99

The Broad Sweep of 2 The Broad Sweep of 2 Centuries:Centuries:

Income per CapitaIncome per Capita

1000

10000

100000

1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Europe - 15

United States

1010

Since 1960: Europe Fails Since 1960: Europe Fails to Converge and then Falls to Converge and then Falls

BehindBehind

1000

6000

11000

16000

21000

26000

31000

36000

1960 1965 1970 1975 1980 1985 1990 1995 2000

Europe - 15

United States

1111

Productivity since 1870:Productivity since 1870:Almost Catching Up is Not Almost Catching Up is Not

EnoughEnough

1

10

100

1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Europe - 15

United States

1212

Productivity Post-1960:Productivity Post-1960:The Ratio Reaches 96.9% in The Ratio Reaches 96.9% in

19951995

0

5

10

15

20

25

30

35

40

45

1960 1965 1970 1975 1980 1985 1990 1995 2000

Europe - 15

United States

1313

The Europe / US Ratios The Europe / US Ratios Are Much More DramaticAre Much More Dramatic

0

20

40

60

80

100

120

1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Output per hourOutput per capita

1414

The Ratios Again:The Ratios Again:A Post-1960 Close-upA Post-1960 Close-up

40

50

60

70

80

90

100

110

1960 1965 1970 1975 1980 1985 1990 1995 2000

Output per hour

Output per capita

1515

Ratios of Ratios:Ratios of Ratios:The Real Clue to What is Going The Real Clue to What is Going

OnOn

60

70

80

90

100

110

120

130

1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Hours per employee

Employee to population ratio

Output per capita tooutput per hour ratio

1616

Ratios of Ratios: Ratios of Ratios: The Post-1960 Close-upThe Post-1960 Close-up

60

70

80

90

100

110

120

130

1960 1965 1970 1975 1980 1985 1990 1995 2000

Hours per employee

Employee to population ratio

Output per capita tooutput per hour ratio

1717

What the RecentWhat the RecentMacro AnnualMacro Annual Debate has Debate has

MissedMissed The EU/US Ratio for Employment-The EU/US Ratio for Employment-

Population turned around in 1995Population turned around in 1995 Why?Why?

– A reversal of labor market regulations?A reversal of labor market regulations?– A reversal of product market regulations?A reversal of product market regulations?– A reversal of labor taxes?A reversal of labor taxes?

But the decline in hours/employee did But the decline in hours/employee did not turn aroundnot turn around

1818

Hours per Employee Declined Hours per Employee Declined in Tandem until 1970, then in Tandem until 1970, then

divergeddiverged

0

500

1000

1500

2000

2500

3000

3500

1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Europe - 15

United States

1919

A Close-up of Hours per A Close-up of Hours per EmployeeEmployeeafter 1960after 1960

1400

1500

1600

1700

1800

1900

2000

2100

2200

1960 1965 1970 1975 1980 1985 1990 1995 2000

Europe - 15

United States

2020

Employment per CapitaEmployment per Capitaback to 1870back to 1870

30%

35%

40%

45%

50%

55%

1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Europe - 15

United States

2121

Employment per Capita after Employment per Capita after 1960:1960:

U.S. Women and Teens U.S. Women and Teens Marched Off to Work 1965-Marched Off to Work 1965-

19901990

30%

35%

40%

45%

50%

55%

1960 1965 1970 1975 1980 1985 1990 1995 2000

Europe - 15

United States

2222

Summary of Turnaround inSummary of Turnaround inE/N vs. H/EE/N vs. H/E

Table 1

Levels and Growth Rates of Three Ratios of Europe to the United States, 1960-2004, percent

       

  Hours Hours Employees

  per Capita per Employee per Capita

       

1960 119.8 102.4 115.9

1970 102.4 97.4 105.6

1995 73.6 87.1 85.7

2004 77.2 85.4 91.7

       

Annual      

Growth Rates    

       

1960-70 -1.6 -0.5 -0.9

1970-95 -1.3 -0.4 -0.8

1995-2004 0.5 -0.2 0.8

2323

An Outline of Issues for An Outline of Issues for DiscussionDiscussion

Europe’s failure to converge is not just a Europe’s failure to converge is not just a matter of voluntary vacationsmatter of voluntary vacations

Much more of the change 1960-95 was the Much more of the change 1960-95 was the decline in employment per capitadecline in employment per capita

Even lower hours are not entirely voluntaryEven lower hours are not entirely voluntary– ““If the French really wanted to work only 35 If the French really wanted to work only 35

hours, why do they need the hours police?”hours, why do they need the hours police?” Alesina: Alesina:

Short hours are a victory for unions and parliamentary Short hours are a victory for unions and parliamentary politics, not for free choicepolitics, not for free choice

So is early retirement, a major source of falling E/NSo is early retirement, a major source of falling E/N

2424

Textbook Labor EconomicsTextbook Labor Economics

-2

-1

0

1

2

3

4

5

6

7

1 2 3 4 5 6 7 8 9 10 11

Labor Input

Re

al W

ag

e

Labor Demand Curve

High-Cost LaborSupply Curve

Low-Cost LaborSupply Curve

(W/P)0

(W/P)1

N0 N1

Downward shift in labor supply curve reduces real wage and productivity

A

B

2525

Welfare Valuation of LeisureWelfare Valuation of Leisure

Work time is chosen to equate marginal Work time is chosen to equate marginal utility of leisure to after-tax wageutility of leisure to after-tax wage

Diminishing marginal utility of leisureDiminishing marginal utility of leisure– Infra-marginal leisure valued > wageInfra-marginal leisure valued > wage– Extra-marginal leisure valued < wageExtra-marginal leisure valued < wage

Back-of-envelope. Back-of-envelope. – Value weekday and weekend leisure of both Value weekday and weekend leisure of both

workers and retired = 4/3 after-tax wageworkers and retired = 4/3 after-tax wage– Value hours switched from work to retirement Value hours switched from work to retirement

= 2/3 after-tax wage= 2/3 after-tax wage

2626

What Matters for Welfare is Y/NWhat Matters for Welfare is Y/N + Differential Leisure, not Y/H + Differential Leisure, not Y/H

Europeans have “bought” their high Europeans have “bought” their high productivity ratio with every productivity ratio with every conceivable way of making labor conceivable way of making labor expensiveexpensive– High marginal tax rates (payroll and High marginal tax rates (payroll and

income taxes)income taxes)– Firing restrictionsFiring restrictions– Early retirement (55! 58!) with pensions Early retirement (55! 58!) with pensions

paid for by working peoplepaid for by working people– Lack of encouragement of market Lack of encouragement of market

involvement by teens and youthinvolvement by teens and youth

2727

The Decline in Europe’s E/N The Decline in Europe’s E/N Matters more than H/EMatters more than H/E

First, which age groups are suffering First, which age groups are suffering from higher unemployment in Europe?from higher unemployment in Europe?

Second, which age groups experience Second, which age groups experience lower labor force participation in Europe?lower labor force participation in Europe?

Third, how does it come together in the Third, how does it come together in the distribution of low E/N by age group?distribution of low E/N by age group?

Note: These graphs are for total Note: These graphs are for total population by age and blur male/female population by age and blur male/female differences.differences.

2828

Unemployment by Age:Unemployment by Age:EU vs. USEU vs. US

0

5

10

15

20

25

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74

2929

Labor-force ParticipationLabor-force Participationby Ageby Age

0

10

20

30

40

50

60

70

80

90

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74

3030

Putting it Together:Putting it Together:Europe vs. US E/N by Age Europe vs. US E/N by Age

GroupGroup

0

10

20

30

40

50

60

70

80

90

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74

3131

Weighting the Age Groups:Weighting the Age Groups:Older in EuropeOlder in Europe

0

1

2

3

4

5

6

7

8

9

<15 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79

3232

Decomposing the EU/US Decomposing the EU/US Difference Difference

in the E/N Ratioin the E/N Ratio

age distribution unemployment LFPR E/N ratio

EU EU EU 87.14

US EU EU 86.19

EU US EU 91.23

EU EU US 97.11

US US EU 90.77

EU US US 102.1

3333

Big Issues: Low LFPR of OldBig Issues: Low LFPR of Oldand low E/N of Youngand low E/N of Young

About the old, why have European About the old, why have European state-supported pension plans state-supported pension plans encouraged early retirement (age 58 in encouraged early retirement (age 58 in France and NL)?France and NL)?

Alesina (2006) cites this as a prime Alesina (2006) cites this as a prime example of the work-sharing philosophy example of the work-sharing philosophy of unions and European leftist partiesof unions and European leftist parties

Unions and leftists also responsible for Unions and leftists also responsible for long vacations and short work weeks, long vacations and short work weeks, esp. in Franceesp. in France

3434

Brief Summary of theBrief Summary of theRecent Prescott DebateRecent Prescott Debate

Prescott says it’s all higher taxes in EuropePrescott says it’s all higher taxes in Europe This is consistent with This is consistent with

– Firms cutting jobsFirms cutting jobs– Employees choosing untaxed leisureEmployees choosing untaxed leisure– So decline in both H/E and E/N are involvedSo decline in both H/E and E/N are involved

Problems:Problems:– Alesina, labor supply elasticities don’t matchAlesina, labor supply elasticities don’t match

The labor-supply elasticity for adult men is zeroThe labor-supply elasticity for adult men is zero The elasticity for females and teenagers is high, but The elasticity for females and teenagers is high, but

they are only half of the storythey are only half of the story Thus Prescott can explain only half of labor Thus Prescott can explain only half of labor

withdrawalwithdrawal– Me, not consistent with age distribution storyMe, not consistent with age distribution story

3535

Ljungqvist-Sargent’s Ljungqvist-Sargent’s skepticismskepticism

on the “national family”on the “national family” Prescott assumes national family, Prescott assumes national family,

voluntary redistribution to those who voluntary redistribution to those who withdraw labor because of high taxeswithdraw labor because of high taxes

In reality most of those who withdraw In reality most of those who withdraw labor supply because of high taxes are not labor supply because of high taxes are not supported by voluntary family transferssupported by voluntary family transfers

Are supported by government transfer Are supported by government transfer payments that “strain social insurance payments that “strain social insurance systems”; “government expenditures were systems”; “government expenditures were poor substitutes for private consumption”poor substitutes for private consumption”

3636

Alesina on UnionsAlesina on Unionsand Regulationand Regulation

Contrast between U. S. and EUContrast between U. S. and EU U. S. union penetration peaked in late U. S. union penetration peaked in late

30s, 1940s, declined after 1950s30s, 1940s, declined after 1950s Europe peaked in late 1970s, early Europe peaked in late 1970s, early

1980s1980s No disagreement about what unions No disagreement about what unions

do to the labor supply and demand do to the labor supply and demand diagramsdiagrams– Unions push the economy northwestUnions push the economy northwest

3737

Channels of European Channels of European Union Influence (Alesina)Union Influence (Alesina)

Unions keep wages artificially highUnions keep wages artificially high Unions may pursue a political agenda Unions may pursue a political agenda

to reduce work hoursto reduce work hours Unions impede the reallocation of Unions impede the reallocation of

labor in response to sectoral shockslabor in response to sectoral shocks

Neither Alesina nor critics notice Neither Alesina nor critics notice turnaround in Europe’s E/N after 1995turnaround in Europe’s E/N after 1995

3838

Alesina Examples of Union Alesina Examples of Union PowerPower

Reducing hours per week and raising Reducing hours per week and raising wage per hourwage per hour

Examples of defending “the welfare Examples of defending “the welfare state and public pension systems”state and public pension systems”

Pushing Early RetirementPushing Early Retirement– In GeneralIn General– As a solution to plant closingsAs a solution to plant closings

3939

Critique of Modern MacroCritique of Modern MacroInterpretationsInterpretations

About Alesina, timing is wrong. Union About Alesina, timing is wrong. Union density increased 1960-80, but then density increased 1960-80, but then fell to 1995 to about the same level as fell to 1995 to about the same level as 19601960

This argument from Rogerson (2006) This argument from Rogerson (2006) ignores inertia in political processignores inertia in political process

None of theories have provided an None of theories have provided an explanation of the EU post-1995 explanation of the EU post-1995 turnaround in E/Nturnaround in E/N

4040

A Broader View:A Broader View:The Welfare Cost of HigherThe Welfare Cost of Higher

UnemploymentUnemployment

The distinction between marginal hours The distinction between marginal hours of leisure (40 work, 80 leisure) vs. of leisure (40 work, 80 leisure) vs. inframarginal hours (20 work, 100 inframarginal hours (20 work, 100 leisure)leisure)

Gordon (1973) distinction temporary Gordon (1973) distinction temporary vs. permanent increase in Uvs. permanent increase in U– Output loss 2.7 vs. 2.3 for temporary caseOutput loss 2.7 vs. 2.3 for temporary case– Output loss 0.7 for permanent case Output loss 0.7 for permanent case

4141

The Welfare Effect of EarlyThe Welfare Effect of EarlyRetirement: Back-of-EnvelopeRetirement: Back-of-Envelope

Baseline: work age 20-65, retire 65-84Baseline: work age 20-65, retire 65-84 No saving, investmentNo saving, investment 30% tax finances pay-as-you-go pensions 30% tax finances pay-as-you-go pensions

with balanced govt budgetwith balanced govt budget– Tax finances equality of consumption in Tax finances equality of consumption in

retirement to consumption during work yearsretirement to consumption during work years Alternative retirement age at 55 requires Alternative retirement age at 55 requires

tax increase to 45.6%, 25.1% decline in tax increase to 45.6%, 25.1% decline in consumption during work years and consumption during work years and retirementretirement

4242

Welfare calculationWelfare calculation

With 55 retirement age, after-tax With 55 retirement age, after-tax wage is 25% lesswage is 25% less

Extra hours switched from work to Extra hours switched from work to retirement leisure are low-valued (2/3)retirement leisure are low-valued (2/3)

Total welfare = market consumption Total welfare = market consumption plus total value of leisure plus total value of leisure

Market consumption declines 25.1 Market consumption declines 25.1 percent, welfare declines 22.6 percent, welfare declines 22.6 percent, ratio 90% (i.e., leisure offsets percent, ratio 90% (i.e., leisure offsets 10%)10%)

4343

Time Allocation from Time Allocation from Freeman-SchettkatFreeman-Schettkat

Freeman average males & females, Freeman average males & females, workdayworkday

M=market, H=home production, M=market, H=home production, L=leisure, P=personal time (sleep)L=leisure, P=personal time (sleep)

I set P>9.0 as LeisureI set P>9.0 as Leisure

M H L PM H L P

Employed 8.0 2.5 4.5 9Employed 8.0 2.5 4.5 9

Unemployed 1.0 4.5 9.5 9Unemployed 1.0 4.5 9.5 9

4444

What’s Wrong with What’s Wrong with European Youth?European Youth?

Youth enter late into Market EmploymentYouth enter late into Market Employment If we are assessing extra European If we are assessing extra European

“leisure”, how much if any credit do we “leisure”, how much if any credit do we give to youth? give to youth? – Disconnected from the market economyDisconnected from the market economy– American youth are expected to workAmerican youth are expected to work

Link with government support of higher Link with government support of higher education: tuition grants in Europe vs. education: tuition grants in Europe vs. peer-reviewed research grants in US peer-reviewed research grants in US – Plus state university subsidiesPlus state university subsidies

4545

Turn the Tables on the U. S.:Turn the Tables on the U. S.:The “Disconnect” between The “Disconnect” between

Welfare and PPP-Adjusted GDPWelfare and PPP-Adjusted GDP

GDP Exaggerates U. S. GDP per CapitaGDP Exaggerates U. S. GDP per Capita– Extreme climate, lots of air conditioning, Extreme climate, lots of air conditioning,

low petrol prices, huge excess energy uselow petrol prices, huge excess energy use– U. S. urban sprawl: energy use, U. S. urban sprawl: energy use,

congestioncongestion– Crime, 2 million in prisonCrime, 2 million in prison– Insecurity, lack of employment protection, Insecurity, lack of employment protection,

lack of citizen’s right to medical carelack of citizen’s right to medical care How much is this worth?How much is this worth?

4646

A Shrinking Explanation:A Shrinking Explanation:Declining Btu / GDPDeclining Btu / GDP

200

250

300

350

400

1940 1950 1960 1970 1980 1990 2000 2010

5

10

15

20

25

Btu/GDP

Btu per capita

4747

The EU-US Difference The EU-US Difference is only 2% of GDPis only 2% of GDP

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1980 1985 1990 1995 2000

4848

Other Additions or Subtractions Other Additions or Subtractions

from Europe’s Welfarefrom Europe’s Welfare Urban Congestion? Urban Congestion?

– London vs. NY?London vs. NY?– Paris vs. Chicago?Paris vs. Chicago?– Time spent in London underground vs. in Time spent in London underground vs. in

a Chicago automobile?a Chicago automobile? Prisons, perhaps 1% of GDPPrisons, perhaps 1% of GDP Undeniable U. S. superiority: housingUndeniable U. S. superiority: housing

– People value interior square feet (2X in People value interior square feet (2X in US)US)

– People value exterior land (4X in US)People value exterior land (4X in US)

4949

The Intangible andThe Intangible andUnknowableUnknowable

The value of security in EuropeThe value of security in Europe Prescott counts only the substitution Prescott counts only the substitution

effects of higher labor taxeseffects of higher labor taxes Europeans get full value back per tax Europeans get full value back per tax

dollar in valued government servicesdollar in valued government services– U comp, maternity leave, pensions, U comp, maternity leave, pensions,

severance payseverance pay

5050

Putting it Together for 2004Putting it Together for 2004

EU/US Y/N = 68.8EU/US Y/N = 68.8 EU/US Y/H = 89.2EU/US Y/H = 89.2 Raise Europe:Raise Europe:

– 67% of H/E difference (11.8) is leisure = 7.967% of H/E difference (11.8) is leisure = 7.9– 10% of E/N difference (8.6) = 0.910% of E/N difference (8.6) = 0.9– Half of Energy use difference = 1.0Half of Energy use difference = 1.0– Prisons and other = 1.0Prisons and other = 1.0

Europe’s welfare vs. U. S. = 79.6Europe’s welfare vs. U. S. = 79.6 Understated because of security vs. Understated because of security vs.

insecurity, but who knows how much?insecurity, but who knows how much?

5151

Table 2

Summary of Adjustments to the Europe-to-U.S. Ratio of Per-capita Income, 2004

       

  Europe-to-U. S. Adjustment toAdjustment

to

 Ratio of Real GDP per

CapitaLeisure Component of

Hours GDP

       

Market PPP Ratio of Y per Capita 68.8

Add: 2/3 of Difference

in Hours per Employee (11.8) 7.9

Add: 1/10 of Difference      

in Employment per Capita (8.6)   0.9  

     

Add: Half of Energy Use Difference     1.0

Add: Prisons and Other 1.0

Sum of Market PPP Ratio and

above Additions 79.6    

       

Market PPP Ratio of Y per Hour 89.2

 

Percent Prody Gap Explained 52.9  

       

Percent Total Gap Explained 30.8