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Stone–Geary type preferences and the long-run labor supply

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  • Tamotsu Nakamura

    (Kobe University)

Abstract

In most advanced economies, working hours have steadily declined, while the per-capita income has steadily increased. Boppart and Krusell (J Polit Econ 128(1):118–157, 2020) propose a new preference class in order to account for these observations. They show that the income effect on labor supply exceeds the substitution effect in the balanced-growth path. However, the longer-term changes, or less-developed economies, reveal backward-bending relationships between income and working hours. To explain this fact, we introduce Stone–Geary type non-homotheticity in preferences into a non-overlapping generations model, and analyze how working hours evolve with income. With the non-homotheticity, the long-run equilibrium labor supply bends backward. Further, the backward-bending curve emerges not only as a transitional phenomenon, but also in the balanced-growth path.

Suggested Citation

  • Tamotsu Nakamura, 2022. "Stone–Geary type preferences and the long-run labor supply," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 169-188, April.
    • Handle: RePEc:spr:eaiere:v:19:y:2022:i:1:d:10.1007_s40844-021-00204-6
    DOI: 10.1007/s40844-021-00204-6
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    References listed on IDEAS

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    1. Gene M. Grossman & Elhanan Helpman & Ezra Oberfield & Thomas Sampson, 2017. "Balanced Growth Despite Uzawa," American Economic Review, American Economic Association, vol. 107(4), pages 1293-1312, April.
    2. Piyabha Kongsamut & Sergio Rebelo & Danyang Xie, 2001. "Beyond Balanced Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 869-882.
    3. Timo Boppart & Per Krusell, 2020. "Labor Supply in the Past, Present, and Future: A Balanced-Growth Perspective," Journal of Political Economy, University of Chicago Press, vol. 128(1), pages 118-157.
    4. Philippe Aghion & Patrick Bolton, 1997. "A Theory of Trickle-Down Growth and Development," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(2), pages 151-172.
    5. Jürgen Meckl & Stefan Zink, 2004. "Solow and heterogeneous labour: a neoclassical explanation of wage inequality," Economic Journal, Royal Economic Society, vol. 114(498), pages 825-843, October.
    6. Mr. Sergio Rebelo & Ms. Piyabha Kongsamut & Danyang Xie, 2001. "Beyond Balanced Growth," IMF Working Papers 2001/085, International Monetary Fund.
    7. H. Uzawa, 1961. "Neutral Inventions and the Stability of Growth Equilibrium," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 28(2), pages 117-124.
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    Cited by:

    1. Hiroaki Sasaki, 2022. "Special feature: economic dynamics—growth, capital, labor, technology, and money," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 159-167, April.

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