BACK in the 1970s, Germans, Frenchmen, and Italians worked slightly more hours on average than Americans. These days, Americans work about 30% more hours than their European counterparts. Is Europe degenerating into a huge retirement village? Are Americans deranged by the rat-race? What gives?

It's simple, really. Work is worth more in the United States, so people there work more. According to the economists Claudio Michelacci and Josep Pijoan-Mas of Spain's Centre for Monetary and Financial Studies, the difference between work-happy Americans and lolling Europeans isn't a cultural gap about the value of leisure and work/life balance. It's incentives:

Getting promoted in the current job, and obtaining better jobs requires hard work, and workers are ready to do it only if the endeavour is worth it. When this return falls, hours worked fall. This is the case of Europe over the last three decades. While the pursuit of the American dream makes Americans work hard, the sluggish economic performance of Europe discourages European workers from working longer hours. So rather than blaming Europeans for devoting too much time to leisure activities, it may be worth liberalising European markets further.

As they emphasise, European workers aren't less productive; it's just that a smaller proportion of Europeans work, and they work fewer hours. And this has a big effect on national output:

GDP per capita is today 30% higher in the US than in France or Germany, while productivity, measured by GDP per hour worked, is roughly equal. This means that Americans are today richer than Europeans not because they are more productive but simply because they work more.

A good bit of this gap in labour participation and therefore output is attributable to relatively high European tax rates. As 2004 economics Nobel Prize-winner Edward Prescott noted in this 2005 Wall Street Journal op-ed:

So, why did the European labor supply decrease by a third from the early 1970s to the mid-1990s? Because the marginal effective tax rate was increased to 60% from 40%. People chose to work less than before. Consequently, tax revenues fell. You can’t raise revenues by taxing people beyond their willingness to pay. And you can’t expect an economy to grow when people don’t have the incentive to work, or when entrepreneurs lack the incentive to take a chance.

Remember that the next time someone tries to tell you supply-side effects of taxation are "crackpot".