Working Paper: NBER ID: w12889
Authors: Richard Rogerson
Abstract: This paper examines the evolution of hours worked in France, Germany, Italy and the US from 1956-2003 and assesses the role of taxes and technology to account for the differences. The empirical work establishes three results. First, hours worked in Europe decline by almost 45% compared to the US over this period. This change is almost an order of magnitude larger than the effects associated with the increase in unemployment over this time period. Second, the decline occurs at a steady pace from 1956 until the mid 1990s, in contrast to the fact that the relative increase in unemployment occurs in the mid 1970s. Third, the decline in hours worked in Europe is almost entirely accounted for by the fact that Europe develops a much smaller service sector than the US. I build a simple model of time allocation to understand the evolution of total hours worked and their distribution across sectors, and calibrate it to match the US between 1956 and 2000. I find that relative increases in taxes and technological catch-up can account for most of the differences between the European and American time allocations over this period.
Keywords: Labor Market Outcomes; Structural Transformation; Hours Worked; Taxes; Technology
JEL Codes: E2; J2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| hours worked in Europe (N34) | decline in hours worked relative to US (J89) |
| structural transformation of economies (O53) | decline in hours worked in Europe (J22) |
| technological lag (O33) | differences in aggregate hours worked (J22) |
| higher tax rates in Europe (H29) | differences in aggregate hours worked (J22) |
| tax differences (H20) | discourage market work in favor of home production (D13) |
| hours worked (J22) | unemployment rates in Europe (J60) |