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Work and taxes: allocation of time in OECD countries

  • Lee Ohanian
  • Andrea Raffo
  • Richard Rogerson

Policymakers devote a great deal of attention to short-run fluctuations in the labor market. Central banks monitor indicators of labor market tightness in the conduct of monetary policy due to the potential implications for inflation. And fiscal authorities are concerned with the budget consequences of fluctuations in the labor market because they affect both revenues and expenditure programs. More generally, these fluctuations may be associated with significant losses in welfare. ; This article stems from a striking empirical observation about long-run variations in labor market outcomes: Long-run changes in total hours of work in OECD countries exceed the variation of hours worked over the business cycle in a representative country (say, the United States) by almost an order of magnitude. If understanding changes in hours of work of the magnitude of business cycle fluctuations is an important policy concern, then understanding the sources of these trend differences is also crucial. Surprisingly, the academic and policy debates have focused on the business cycle movements in the labor market, almost ignoring low frequency changes. ; Lee Ohanian, Andrea Raffo, and Richard Rogerson describe the steep decline in average hours worked and the large variation across countries in the magnitude of this decline. Next, they find that changes in labor taxes account for a large share of the trend differences. Finally, they find that countries with high tax rates devote less time to market work, but more time to home activities, such as cooking and cleaning. Moreover, this reallocation of time from market work to home work is much stronger for females than for males.

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Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.

Volume (Year): (2007)
Issue (Month): Q III ()
Pages: 37-58

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Handle: RePEc:fip:fedker:y:2007:i:qiii:p:37-58:n:v.92no.3
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  1. Edward C. Prescott, 2004. "Why do Americans Work so Much More than Europeans?," NBER Working Papers 10316, National Bureau of Economic Research, Inc.
  2. Alberto Alesina & Edward L. Glaeser & Bruce Sacerdote, 2005. "Work and Leisure in the U.S. and Europe: Why So Different?," NBER Working Papers 11278, National Bureau of Economic Research, Inc.
  3. Olovsson, Conny, 2004. "Why do Europeans Work so Little?," Seminar Papers 727, Stockholm University, Institute for International Economic Studies.
  4. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
  5. Richard Rogerson, 2007. "Taxation and Market Work: Is Scandinavia an Outlier?," NBER Working Papers 12890, National Bureau of Economic Research, Inc.
  6. Richard B. Freeman & Ronald Schettkat, 2005. "Marketization of household production and the EU–US gap in work," Economic Policy, CEPR;CES;MSH, vol. 20(41), pages 6-50, 01.
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