Working Paper: CEPR ID: DP14180
Authors: Alexander Bick; Nicola Fuchs-Schündeln; David Lagakos; Hitoshi Tsujiyama
Abstract: Why are average hours worked per adult lower in rich countries than in poor countries? Two natural candidates to consider are income effects in preferences, in which leisure becomes more valuable when income rises, and distortionary tax systems, which are more prevalent in richer countries. To assess the importance of these two forces, we build a simple model of labor supply by heterogeneous individuals and calibrate it to match international data on labor income taxation, government transfers relative to GDP, and hours worked per adult. The model predicts that income effects are the main driving force behind the decline of average hours worked with GDP per capita. We reach a similar conclusion in an extended model that matches cross-country patterns of labor supply along the extensive and intensive margins and of the prevalence of subsistence self-employment.
Keywords: No keywords provided
JEL Codes: E24; J21; J22; O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income effects in preferences (D11) | Decline of average hours worked (J29) |
| Increase in GDP per capita (O49) | Decline of average hours worked (J29) |
| Individual wages rise (J31) | Demand for leisure increases (J29) |
| Demand for leisure increases (J29) | Reduction in hours worked (J22) |
| Income effects (H31) | Differences in hours worked between poorest and richest terciles (J31) |
| Tax-and-transfer systems (H29) | Differences in hours worked among advanced economies (J22) |