The culture of effort and the US-EU divide in labour market and firm-level outcomes

Barcelona GSE research on by Alessandra Bonfiglioli and Gino Gancia

Differences in labour market and firm statistics between the US and Europe are easy to dismiss as cultural. This column applies an equilibrium model of worker screening and effort to cross-country data, showing that a large chunk of observed differences can be explained by the strategic interaction between firm and worker strategies. Evidence suggests that the US is in a high-screening, high-effort equilibrium, while southern Europe is in the complementary equilibrium. Perhaps culture is more economic than we might assume.

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