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Trends in U.S. hours and the labor wedge

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  • 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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Paper provided by Federal Reserve Bank of Dallas in its series Globalization and Monetary Policy Institute Working Paper with number 53.

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Date of creation: 2010
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Handle: RePEc:fip:feddgw:53

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Keywords: Hours of labor ; Taxation ; Households - Economic aspects ; Labor supply ; Wages;

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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. Carlos Zarazaga & Finn Kydland, 2012. "Fiscal Sentiment and the Weak Recovery from the Great Recession: A Quantitative Exploration," 2012 Meeting Papers 1139, Society for Economic Dynamics.
  2. 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.
  3. Brinca, Pedro, 2013. "Distortions in the Neoclassical Growth Model: A Cross-Country Analysis," Research Papers in Economics 2013:13, Stockholm University, Department of Economics.

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