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Trends in U.S. Hours and the Labor Wedge

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Author Info

  • Simona E. Cociuba
  • Alexander Ueberfeldt

Abstract

From 1980 until 2007, U.S. average hours worked increased by thirteen percent, due to a large increase in female hours. At the same time, the U.S. labor wedge, measured as the discrepancy between a representative household’s marginal rate of substitution between consumption and leisure and the marginal product of labor, declined substantially. We examine these trends in a model with heterogeneous households: married couples, single males and single females. Our quantitative analysis shows that the shrinking gender wage gaps and increasing labor income taxes observed in U.S. data are key determinants of hours and the labor wedge. Changes in our model’s labor wedge are driven by distortionary taxes and non-distortionary factors, such as cross-sectional differences in households’ labor supply and productivity. We conclude that the labor wedge measured from a representative household model partly reflects imperfect household aggregation.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 10-28.

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Length: 53 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:bca:bocawp:10-28

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Keywords: Labour markets; Economic models; Potential output;

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  1. Labor Supply Heterogeneity
    by Agent Continuum in Agent Continuum on 2010-08-02 05:00:24
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Cited by:
  1. Murat Tasci & Andrea Pescatori, 2011. "Search Frictions and the Labor Wedge," 2011 Meeting Papers 371, Society for Economic Dynamics.
  2. Murat Tasci & Andrea Pescatori, 2011. "Search Frictions and the Labor Wedge," IMF Working Papers 11/117, International Monetary Fund.
  3. Andrea Pescatori & Murat Tasci, 2011. "Search Frictions and the Labor Wedge," Koç University-TUSIAD Economic Research Forum Working Papers 1113, Koc University-TUSIAD Economic Research Forum.
  4. Andrea Pescatori & Murat Tasci, 2011. "Search frictions and the labor wedge," Working Paper 1111, Federal Reserve Bank of Cleveland.
  5. Finn E. Kydland & Carlos E. J. M. Zarazaga, 2013. "Fiscal sentiment and the weak recovery from the Great Recession: a quantitative exploration," Working Papers 1301, Federal Reserve Bank of Dallas.

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