Working Hours and Taxation

This article introduces the debate surrounding Prescott's (2004) theory in which he attributes the differences in working hours among the major industrialized nations to respective disparities in the tax systems and public retirement programs. The validity of this argument for Japan is examined. Lacking a body of empirical research that tests assumptions regarding the elasticity of the aggregate labor supply in Japan, we cannot verify that this model applies to Japan. It is clear that in the case of Japan, the structure of incentives provided by various benefit programs has greater bearing than does the tax system. Furthermore, the model used in Prescott's paper considers only in general tax and public retirement programs, and is inappropriate in an analysis of working hours. The remedy for long working hours involves the issue of coordination, and it requires much more in-depth debate regarding the role that labor unions and government regulations do or should play.