The Leisure Gains from International Trade

The average number of hours worked has been declining in many countries. If workers have preferences such that income effects outweigh substitution effects, then a welfare-improving response to rising income is to reduce labor supply to enjoy more leisure time. Using a multi-country Ricardian trade model, I derive an hours-to-trade elasticity that is composed by the wage (Marshallian) and trade elasticities. I estimate the hours-to-trade elasticity by exploiting exogenous income variation generated by trade. Findings suggest that a one percent increase in imports (as share of GDP) leads to a 0.17 percent decline in hours per worker. This implies dominating income effects backed by a wage elasticity of -0.16 and a trade elasticity close to unity. I quantify that the rise in trade openness between 1950 and 2014 explains, on average, 7.4 percent of the total decline in hours per worker in high-income countries.