Working Paper: NBER ID: w8774
Authors: Casey B. Mulligan
Abstract: I construct direct measures of labor-leisure distortions for the American economy during the period 1889-1996, using a new method for empirically evaluating competitive equilibrium models and extending that method to some noncompetitive situations. I then compare measured labor-leisure distortions to proxies for potential restraints of trade: distortionary taxes and subsidies, labor market regulation, monopoly unionism, and search frictions. Distortions have grown steadily over the century, with the exception of the Great Depression (when distortions were above trend), WWII (below trend), and the 1980's (below trend). Marginal tax rates are well correlated with labor-leisure distortions at low frequencies, but cannot explain Depression, wartime, or 1980's distortions. Monopoly unionism might explain a small part of the Depression distortions, and the decline of unions might explain some of the reduced distortions in the 1980's. In general, I find the decade-to-decade aggregate fluctuations in consumption, wages, and work to be hard to reconcile with simple quantitative models of labor supply and demand.
Keywords: Labor-Leisure Distortions; Marginal Tax Rates; Labor Market Regulations; Monopoly Unionism; Economic Fluctuations
JEL Codes: H20; H30; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| MRS (I19) | MPL (L17) |
| Taxes and regulations (H29) | labor supply and demand dynamics (J20) |
| Marginal tax rates (H29) | labor-leisure distortions (H31) |
| Monopoly unionism (J51) | labor-leisure distortions during the Depression (J29) |
| Decline of unions (J51) | reduced labor-leisure distortions in the 1980s (H31) |