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Why Americans Work So Hard


Observers have long remarked on the sharp disparity between American and European work habits. Americans not only put in considerably more time on the job, but their yearly tally of work hours has actually risen in recent decades. In contrast, most Europeans work fewer hours and have enjoyed a steady decline in annual work time.

A common view is that this difference reflects cultural factors: Europeans, who tend to regard Americans as workaholics, simply prefer leisure to labor. Surveys indicate, for example, that many Europeans would like to reduce their work time, while many more Americans would like to increase theirs and earn more despite the fact that they already clock a lot more hours.

In a recent National Bureau of Economic Research study, however, economists Linda A. Bell and Richard B. Freeman suggest that the difference is related less to cultural values than to the wider range of wages within U.S. companies and the overall economy. In essence, they argue that America's greater pay disparity creates incentives for employees to work harder.

As evidence, the authors cite data on German and U.S. labor markets and workers' attitudes. In both countries, they note, workers in occupations with greater wage inequality tend to put in longer hours at work. But in America, where such inequality is more pervasive, they report that a much larger percentage of workers believes that their chances for advancement are high and that their work effort will pay off in pay hikes and promotions.

The authors' analysis of German and U.S. workers' histories bears this out. Although they find a strong link between past hours worked and current wages in both countries, the effect is far more substantial in the U.S. They estimate that an American who boosts his working time by 10%, from 2,000 to 2,200 hours a year, tends to raise his future earnings by about 1% for each year that he puts in extra hours.

In sum, workers in both nations appear to log more time on the job when pay scales are unequal, but the impact is much weaker in Germany, where wages are far less variable and where greater job security, high jobless benefits, and a national health system cushion the adverse effects of layoffs. Americans work longer hours mainly because of the lure of big wage gains, the authors suggest, they're also responding to the higher risk of losing income and health coverage if the boss lets them go.

Are German or American workers better off? Pointing to the U.S. economy, many economists argue that wider pay scales lead to greater work effort that produces rising productivity and higher levels of income for all workers. On the other hand, surveys indicate that many Americans are ambivalent about their long work hours. While they are reluctant to give up the chance to enhance their incomes, they would prefer to spend more time with their families.

If the authors are right, European nations will have to give up their preference for relatively low work hours if they want to achieve American-style wage disparity and growth. And Americans who want to reduce their workaholic behavior will find it difficult unless pay inequality also starts to narrow. If you're worried about a stock you're holding, it might pay to check the views of both the most prominent and least prominent analysts who follow it. So implies a study by Ezra Zuckerman of Stanford University and Damon Phillips of the University of Chicago.

The two B-school professors recently compared the rankings of a sample of stock analysts with their stock forecasts in the mid-1990s. They found that fewer than 5% of all the forecasts issued involved explicit sell recommendations, and no less than 85% of the analysts gave only positive or neutral opinions.

By itself, this finding is hardly surprising. Past studies have shown that most analysts are loath to issue sell opinions, often choosing instead either to change a stock's status to "hold" or to quietly drop it from coverage.

What's intriguing about the Zuckerman and Phillips study is the identity of the intrepid analysts who advised investors to sell. As it turned out, those who were willing to blow the whistle tended to be either the most prestigious or the lowest-ranked analysts.

This pattern, the authors note, is in line with a sociological theory that conformity is weakest at the top and bottom of a "status" hierarchy. In other words, top analysts feel secure enough to deviate from conventional behavior without jeopardizing their status, while low-status analysts feel free to do likewise because they have little to lose. While consumers and small-business owners seem more optimistic about the economy recently, technology business leaders are getting more anxious. According to PricewaterhouseCooper's latest quarterly survey of tech executives, completed in March, nearly half are uncertain about the outlook and more than a fifth are downright pessimistic.

The upshot: Technology companies are scaling back hiring plans, with only 56% planning to add workers over the next year (vs. 77% in the prior quarter) and 16% planning job cuts. And they peg revenue growth at just 16% over the next year, down from the previous reading of 23.5%.

On the positive side, some 50% of companies still plan to make major capital investments in the next year. A majority will be investing in both information technology and new-product development, but the number planning to put more cash into e-commerce has declined by half, to just 32% over the past 12 months.


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