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The Incentive for Working Hard: Explaining Hours Worked Differences in the U.S. and Germany

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Linda A. Bell
Richard B. Freeman

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Abstract

This paper seeks to explain the greater hours worked by Americans compared to Germans in terms of forward-looking labor supply responses to differences in earnings inequality between the countries. We argue that workers choose current hours of work to gain promotions and advance in the distribution of earnings. Since US earnings are more unequally distributed than German earnings, the same extra work pays off more in the US, generating more hours worked. Supporting this inequality-hours hypothesis, we show that in both countries hours worked is positively related to earnings inequality in cross section occupational contrasts and that hours worked raises future wages and promotion prospects in longitudinal data.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8051.

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Date of creation: Dec 2000
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Handle: RePEc:nbr:nberwo:8051

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Find related papers by JEL classification:
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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  1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October. [Downloadable!] (restricted)
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  2. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1125-56, November. [Downloadable!] (restricted)
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  3. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August. [Downloadable!] (restricted)
  4. Hart, Peter E, 1983. "The Size Mobility of Earnings," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 45(2), pages 181-93, May.
  5. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, vol. 86(3), pages 329-48, June. [Downloadable!] (restricted)
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