IDEAS home Printed from https://ideas.repec.org/a/eee/dyncon/v52y2015icp75-95.html
   My bibliography  Save this article

Heterogeneity and long-run changes in aggregate hours and the labor wedge

Author

Listed:
  • Cociuba, Simona E.
  • Ueberfeldt, Alexander

Abstract

From 1961 to 2007, U.S. aggregate hours worked increased and the labor wedge—measured as the discrepancy between a representative household׳s marginal rate of substitution and the marginal product of labor—declined substantially. The labor wedge is negatively related to hours and is often attributed to labor income taxes. However, U.S. labor income taxes increased since 1961. We examine a model with gender and marital status heterogeneity which accounts for the trends in the U.S. hours and the labor wedge. Apart from taxes, the model׳s labor wedge reflects non-distortionary cross-sectional differences in households׳ hours worked and productivity. We provide evidence that household heterogeneity is important for long-run changes in labor wedges and hours in other OECD economies.

Suggested Citation

  • Cociuba, Simona E. & Ueberfeldt, Alexander, 2015. "Heterogeneity and long-run changes in aggregate hours and the labor wedge," Journal of Economic Dynamics and Control, Elsevier, vol. 52(C), pages 75-95.
    • Handle: RePEc:eee:dyncon:v:52:y:2015:i:c:p:75-95
    DOI: 10.1016/j.jedc.2014.11.016
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165188914003133
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jedc.2014.11.016?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Brinca, Pedro, 2014. "Distortions in the neoclassical growth model: A cross-country analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 1-19.
    2. Valerie A. Ramey & Neville Francis, 2009. "A Century of Work and Leisure," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(2), pages 189-224, July.
    3. Larry E. JONES & Rodolfo E. MANUELLI & Ellen R. McGRATTAN, 2015. "Why Are Married Women Working so much ?," JODE - Journal of Demographic Economics, Cambridge University Press, vol. 81(1), pages 75-114, March.
    4. Ohanian, Lee & Raffo, Andrea & Rogerson, Richard, 2008. "Long-term changes in labor supply and taxes: Evidence from OECD countries, 1956-2004," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1353-1362, November.
    5. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 28(Jul), pages 2-13.
    6. Loukas Karabarbounis, 2014. "The Labor Wedge: MRS vs. MPN," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 206-223, April.
    7. Cristina Arellano & Yan Bai & Patrick J. Kehoe, 2019. "Financial Frictions and Fluctuations in Volatility," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2049-2103.
    8. Lilia Maliar & Serguei Maliar, 2003. "The Representative Consumer in the Neoclassical Growth Model with Idiosyncratic Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 368-380, April.
    9. Orazio Attanasio & Hamish Low & Virginia Sánchez-Marcos, 2008. "Explaining Changes in Female Labor Supply in a Life-Cycle Model," American Economic Review, American Economic Association, vol. 98(4), pages 1517-1552, September.
    10. Goldin, Claudia, 1992. "Understanding the Gender Gap: An Economic History of American Women," OUP Catalogue, Oxford University Press, number 9780195072709.
    11. Karabarbounis, Loukas, 2014. "Home production, labor wedges, and international business cycles," Journal of Monetary Economics, Elsevier, vol. 64(C), pages 68-84.
    12. Hall, Robert E, 1997. "Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 223-250, January.
    13. Parkin, Michael, 1988. "A method for determining whether parameters in aggregative models are structural," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 215-252, January.
    14. Robert Shimer, 2009. "Convergence in Macroeconomics: The Labor Wedge," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 280-297, January.
    15. Francine D. Blau & Lawrence M. Kahn, 2000. "Gender Differences in Pay," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 75-99, Fall.
    16. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, May.
    17. Erosa, Andres & Fuster, Luisa & Restuccia, Diego, 2016. "A quantitative theory of the gender gap in wages," European Economic Review, Elsevier, vol. 85(C), pages 165-187.
    18. Casey B. Mulligan, 2002. "A Century of Labor-Leisure Distortions," NBER Working Papers 8774, National Bureau of Economic Research, Inc.
    19. Urban Jermann & Vincenzo Quadrini, 2012. "Erratum: Macroeconomic Effects of Financial Shocks," American Economic Review, American Economic Association, vol. 102(2), pages 1186-1186, April.
    20. Robert Shimer, 2010. "Labor Markets and Business Cycles," Economics Books, Princeton University Press, edition 1, number 9217.
    21. Ellen R. McGrattan & Edward C. Prescott, 2010. "Unmeasured Investment and the Puzzling US Boom in the 1990s," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 88-123, October.
    22. Urban Jermann & Vincenzo Quadrini, 2012. "Macroeconomic Effects of Financial Shocks," American Economic Review, American Economic Association, vol. 102(1), pages 238-271, February.
    23. Bar, Michael & Leukhina, Oksana, 2011. "On the time allocation of married couples since 1960," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 491-510.
    24. Oleksiy Kryvtsov & Alexander Ueberfeldt, 2007. "Schooling, Inequality and Government Policy," Staff Working Papers 07-12, Bank of Canada.
    25. Richard Rogerson, 2007. "Taxation and market work: is Scandinavia an outlier?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(1), pages 59-85, July.
    26. Andres 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.
    27. Frick, Joachim R. & Jenkings, Stephen P. & Lillard, Dean R. & Lipps, Oliver & Wooden, Mark, 2007. "The Cross-National Equivalent File (CNEF) and Its Member Country Household Panel Studies," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 127(4), pages 627-654.
    28. Joines, Douglas H, 1981. "Estimates of Effective Marginal Tax Rates on Factor Incomes," The Journal of Business, University of Chicago Press, vol. 54(2), pages 191-226, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Epstein, Brendan & Mukherjee, Rahul & Finkelstein Shapiro, Alan & Ramnath, Shanthi, 2020. "Trends in aggregate employment, hours worked per worker, and the long-run labor wedge," MPRA Paper 99289, University Library of Munich, Germany.
    2. Benjamin Bridgman, 2016. "Engines of Leisure," BEA Working Papers 0137, Bureau of Economic Analysis.
    3. Gallen, Trevor S., 2018. "Is the labor wedge due to rigid wages? Evidence from the self-employed," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 184-198.
    4. Pedro Brinca & João Ricardo Costa Filho & Francesca Loria, 2024. "Business cycle accounting: What have we learned so far?," Journal of Economic Surveys, Wiley Blackwell, vol. 38(4), pages 1276-1316, September.
    5. Salem Abo-Zaid, 2021. "Taxation, credit frictions and the cyclical behavior of the labor wedge," Empirical Economics, Springer, vol. 60(4), pages 1777-1816, April.
    6. Zhang, Lini, 2018. "Credit crunches, individual heterogeneity and the labor wedge," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 65-88.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Simona Cociuba & Alexander Ueberfeldt, 2012. "Heterogeneity and Long-Run Changes in U.S. Hours and the Labor Wedge," University of Western Ontario, Centre for Human Capital and Productivity (CHCP) Working Papers 20124, University of Western Ontario, Centre for Human Capital and Productivity (CHCP).
    2. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    3. Ek, Andreas, 2021. "Cross-country differences in preferences for leisure," Labour Economics, Elsevier, vol. 72(C).
    4. Zhang, Lini, 2018. "Credit crunches, individual heterogeneity and the labor wedge," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 65-88.
    5. Benjamin Bridgman, 2016. "Engines of Leisure," BEA Working Papers 0137, Bureau of Economic Analysis.
    6. Gallen, Trevor S., 2018. "Is the labor wedge due to rigid wages? Evidence from the self-employed," Journal of Macroeconomics, Elsevier, vol. 55(C), pages 184-198.
    7. Karabarbounis, Loukas, 2010. "Labor wedges and open economy puzzles," MPRA Paper 31370, University Library of Munich, Germany.
    8. Ohanian, Lee & Raffo, Andrea & Rogerson, Richard, 2008. "Long-term changes in labor supply and taxes: Evidence from OECD countries, 1956-2004," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1353-1362, November.
    9. Brinca, Pedro, 2014. "Distortions in the neoclassical growth model: A cross-country analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 1-19.
    10. Brinca, Pedro, 2014. "Distortions in the neoclassical growth model: A cross-country analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 1-19.
    11. Andrea Pescatori & Murat Tasci, 2011. "Search frictions and the labor wedge," Working Papers (Old Series) 1111, Federal Reserve Bank of Cleveland.
    12. Alonso-Ortiz, Jorge, 2014. "Social security and retirement across the OECD," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 300-316.
    13. Salem Abo-Zaid, 2021. "Taxation, credit frictions and the cyclical behavior of the labor wedge," Empirical Economics, Springer, vol. 60(4), pages 1777-1816, April.
    14. Tutino, Antonella, 2008. "Processing savings and work decisions through Shannon's channels," MPRA Paper 16746, University Library of Munich, Germany, revised 26 Jul 2009.
    15. Üngör, Murat, 2014. "Some thought experiments on the changes in labor supply in Turkey," Economic Modelling, Elsevier, vol. 39(C), pages 265-272.
    16. Nicola Acocella & Laura Bisio & Giovanni Di Bartolomeo & Alessandra Pelloni, "undated". "Labor market imperfections, real wage rigidities and financial shocks," Working Papers 80/11, Sapienza University of Rome, Metodi e Modelli per l'Economia, il Territorio e la Finanza MEMOTEF.
    17. Brendan Epstein & Miles S. Kimball, 2014. "The Decline of Drudgery and the Paradox of Hard Work," International Finance Discussion Papers 1106, Board of Governors of the Federal Reserve System (U.S.).
    18. Matthias Doepke & Moshe Hazan & Yishay D. Maoz, 2015. "The Baby Boom and World War II: A Macroeconomic Analysis," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(3), pages 1031-1073.
    19. Hevia, Constantino, 2014. "Emerging market fluctuations: What makes the difference?," Journal of International Economics, Elsevier, vol. 94(1), pages 33-49.
    20. Ruy Lama, 2011. "Accounting for Output Drops in Latin America," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(2), pages 295-316, April.

    More about this item

    Keywords

    Labor wedge; Household aggregation; Female and male labor supply; Gender wage gap; Labor income taxation;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:52:y:2015:i:c:p:75-95. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jedc .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.