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.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
8774.
Length: Date of creation: Feb 2002 Date of revision: Handle: RePEc:nbr:nberwo:8774
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Find related papers by JEL classification: H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
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