Labour versus leisure preferences and employment in Europe

Simone Moriconi, Giovanni Peri

Unemployment rates vary widely across EU countries. While national institutions and policies explain much of the variation, cultural values, attitudes, and beliefs may also play a role. This column uses survey data from 26 EU countries to investigate the existence of culturally transmitted preferences for work. Country-specific preferences for work are found to have a positive effect on emigrants’ labour market outcomes, with those from countries with an above-average preference for work having higher employment rates abroad. Cultural preferences are significant enough that EU countries may never converge to the same employment rate.

Differences in economic performance across European countries are at the core of the troubles experienced in the Eurozone. Differences in labour markets are particularly important and socially disruptive. While Greece had a youth unemployment rate of 65% in 2013, Germany’s never exceeded 10% going back to 2010. These differentials, together with huge variation in public debt, spending and GDP growth rates, are straining the commitment of countries to stay within a single monetary area. The recent economic crisis has added to this, as countries have been recovering at very different speeds.

The most widely acknowledged explanation among economists and policymakers for the disparate labour market performances of EU countries since the 1980s relates to the institutions and policies established in the 1970s, some of which have persisted until today. Some of these institutions limit downward wage flexibility, they reduce job turnover, and they discourage individual effort in job search. Cross-country differences in institutional arrangements create large employment differentials across Europe.

More recently, however, a number of contributions have pointed out that it is not only the institutions but also the values, attitudes and beliefs related to work that differ deeply across the EU, and that these may also affect employment outcomes. For example, strong family ties (Alesina and Giuliano 2010) and traditionally conservative work and family cultures (Giavazzi et al 2013) discourage labour market participation by youth and women (Fernández 2007). Growing up in economically disadvantaged areas or during economic recessions affects individual socioeconomic beliefs (Giuliano and Spilimbergo 2014), work aspirations and perceived job security, and may create a ‘social norm’ of unemployment (Clark et al 2010). Alesina et al. (2006) advanced the hypothesis that institutions themselves, having induced a reduction of working hours during the 1970s, created a ‘culture of leisure’ in Europe, in that individual returns to leisure increased as more people were working less.

Immigrants and culturally transmitted preferences

In a recent paper, we analyse to what extent preferences for labour relative to leisure are responsible for differential employment outcomes in Europe (Moriconi and Peri 2015). To make progress on this question, we use data from the European Social Survey. This dataset covers individuals in 26 European countries from 2002 to 2012 and contains rich information relative to individual labour market status and demographic characteristics, as well as preferences, values and beliefs. In particular, we extract information on individual labour-leisure preferences from the extent of agreement with the following statement in the survey: “I would enjoy having a paid job even if I did not need the money.”

The survey also contains information on the country of birth of the respondent and of his/her father and mother. This allows us to apply a so-called ‘epidemiologic approach’ to identify the causal effect of labour-leisure preferences on individual employment outcomes. We focus on immigrants and children of immigrants living and working in a European country different from their country of origin. Those individuals are exposed to a variety of institutions and economic environments different from that of their country of origin. However, if a ‘culturally transmitted’ component of their preferences reflects attitudes in the country of origin, by analysing the employment outcomes of individuals from the same ‘culture’ of origin in different countries of residence (as well as from different cultures of origin in the same country of residence), we can learn about the effect of culturally transmitted preferences on the probability of employment and hours worked.

Culture of origin preferences and their persistence

In order to identify country-of-origin-specific preferences for work in an individual, we estimate the average intensity of the preference for work of natives in each country – that is, the share of natives that ‘strongly agree’ with the statement above. Then, we attach these country-specific preference to first- and second-generation migrants from that country, who work anywhere in Europe. We call this ‘culture of origin’ preference for work. Figure 1 shows the correlation between the culture of origin preferences for work (on the horizontal axis) and the preferences of emigrants from that country anywhere in Europe (on the vertical axis), after controlling for characteristics of their country of residence.

We see from the figure a statistically significant positive correlation (coefficient equal to 0.12 and standard error equal to 0.06) between the culture of origin and emigrants’ preferences. When constructing the vertical axis variable, we only include migrants outside the country of origin, hence the correlation is not driven by exposure to common labour market conditions or common institutions. That correlation has to derive from the fact that emigrants share preferences with natives from the same culture of origin.

Figure 1. Culture of origin labour-leisure preferences and migrants’ individual preferences

Effect of preferences on employment outcomes

After establishing that a robust correlation exists between culture of origin preferences for work and the preferences of emigrants from that country, we investigate whether culture of origin preferences matter for the employment outcomes of emigrants. Figure 2 gives an insight into this question. It displays the correlation between the culture of origin preferences for work (as in Figure 1) and the employment rate of emigrants from the same culture of origin, aggregating across all destinations. While there is a large amount of noise and variation produced by many other confounding factors, the figure shows a positive correlation. This indicates that (male, working age) emigrants from countries with higher labour-leisure preferences have a higher probability of being employed when abroad, wherever they are.

Figure 2. Culture of origin labour-leisure preferences and migrants’ employment

This positive association emerges more clearly in regression (see Moriconi and Peri 2015). This accounts for all confounding factors associated with the local environment in the country of destination, for observed and unobserved characteristics of immigrants (e.g. related to skills), and other individual attitudes of emigrants that may be correlated with their preferences for work. When estimating such effects, we find that the culture of origin always has a strongly significant positive effect on employment probability and hours worked.

We then show that the effect of culture of origin preferences on employment outcomes becomes weaker as the immigrants become more assimilated in the host country. For instance, a longer period in the host country attenuates the effect for the first generation immigrants. For the second generation, a native parent (especially a native mother) attenuates substantially the influence of culture of origin preferences.

We also investigate the correlation between culture of origin work-preference and other social and economic behaviours of individuals, such as preference for redistribution, and redistributive institutions such as unions, or government unemployment insurance. As Luttmer and Singhal (2011) note, the preferences for equality, social insurance, and redistribution are important dimensions of cultural transmission. We find evidence of a negative association between preferences for work and redistributive attitudes – individuals who have more leisure-oriented preferences are more likely to participate in a union, and find it more desirable that the government plays an active role in guaranteeing social protection and redistribution.

How large are these effects?

While we found that preferences, and in particular culturally transmitted ones, matter for the working behaviour of individuals, it is important to compare the size of their impact with the impact of institutions in the host country – such as unemployment insurance, union densities and taxation – that have been shown to be important in explaining the cross-European differences (see Arpaia and Mourre 2012, Lehmann et al 2015). We find that the magnitude of the impact of working preferences on the employment rate is sizeable, but much smaller than the impact of institutions and policies. Using the estimated effects of country-specific labour-leisure preferences on employment probability, we can explain about 24% of the 90th-10th percentile difference in employment rates between EU countries. This is a significant amount, but much smaller than the estimated impact of unemployment insurance and average taxation, each of which can explain the whole 90th-10th percentile difference.

Cultural preferences for work or leisure are therefore important enough that EU countries may never converge to the same employment rate, even with identical economic conditions and institutions. However, if they were the only determinants of differences, our estimates suggest that the range of variation in employment rates would be only one quarter of its current level.

References

Alesina, A and P Giuliano (2010) “The power of the family”, Journal of Economic Growth, 15(2): 93-125.

Alesina, A, E Glaeser and B Sacerdote (2006) “Work and leisure in the US and Europe. Why so Different?”, NBER Macroeconomics Annual 2005, 20: 1-100.

Arpaia, A and G Mourre (2012) “Institutions and performance in European labour markets: Taking a fresh look at evidence”, Journal of Economic Surveys, 26(1): 1-41.

Clark, A, A Knabe and S Ratzel (2010) “Boon or bane? Others’ unemployment, well-being and job insecurity”, Labour Economics, 17(1): 52-61.

Fernandez, R (2007) “Women, work, and culture”, Journal of the European Economic Association, 5(2-3): 305--332.

Giavazzi, F, F Schiantarelli and M Serafinelli (2013) “Attitudes, policies and work”, Journal of the European Economic Association, 11(6): 1256-1289.

Giuliano, P and A Spilimbergo (2014) “Growing up in a Recession”, The Review of Economic Studies, 81(2): 787-817.

Lehmann, E, C Lucifora, S Moriconi and B Van der Linden (2015) “Beyond the labour tax wedge: The unemployment reducing effect of tax progressivity”, International Tax and Public Finance (forthcoming).

Luttmer, E F P and M Singhal (2011) “Culture, context and the taste for redistribution”, American Economic Journal: Economic Policy, 3: 157-179.

Moriconi, S and G Peri (2015) “Country-specific preferences and employment rates in Europe”, NBER Working Paper 21561.