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Heterogeneity and Long-Run Changes in U.S. Hours and the Labor Wedge

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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, namely the cross-sectional differences in households' labor supply and productivity. We conclude that the labor wedge measured from a representative household model partly reflects inaccurate household aggregation.

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Paper provided by University of Western Ontario, CIBC Centre for Human Capital and Productivity in its series University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers with number 20124.

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Date of creation: 2012
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Handle: RePEc:uwo:hcuwoc:20124

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Postal: CIBC Centre for Human Capital and Productivity, Social Science Centre, University of Western Ontario, London, Ontario, Canada N6A 5C2
Phone: 519-661-2111 Ext.85244
Web page: http://economics.uwo.ca/research/research_papers/cibc_workingpapers.html

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Keywords: Female and Male Labor Supply; Labor Wedge; Gender Wage Gap; Labor Income Taxation; Household Aggregation;

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  1. Lee Ohanian & Andrea Raffo & Richard Rogerson, 2006. "Long-Term Changes in Labor Supply and Taxes: Evidence from OECD Countries, 1956-2004," NBER Working Papers 12786, National Bureau of Economic Research, Inc.
  2. Bar Michael & Leukhina Oksana, 2009. "To Work or Not to Work: Did Tax Reforms Affect Labor Force Participation of Married Couples?," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 9(1), pages 1-30, July.
  3. Oleksiy Kryvtsov & Alexander Ueberfeldt, 2007. "Schooling, Inequality and Government Policy," Working Papers 07-12, Bank of Canada.
  4. Andrés Erosa & Luisa Fuster & Diego Restuccia, 2002. "Fertility Decisions and Gender Differences in Labor Turnover, Employment, and Wages," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(4), pages 856-891, October.
  5. Chakraborty, Suparna, 2009. "The boom and the bust of the Japanese economy: A quantitative look at the period 1980-2000," Japan and the World Economy, Elsevier, Elsevier, vol. 21(1), pages 116-131, January.
  6. Simona E. Cociuba & Alexander Ueberfeldt, 2008. "Driving Forces of the Canadian Economy: An Accounting Exercise," Working Papers 08-14, Bank of Canada.
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