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The Circular Relationship Between Productivity and Hours Worked: A Long-Term Analysis

Author

Listed:
  • Gilbert Cette

    (Neoma Business School)

  • Simon Drapala

    (Paris School of Economics and Université Paris 1 Panthéon – Sorbonne)

  • Jimmy Lopez

    (Université de Bourgogne)

Abstract

We analyze the circular relationship between productivity (or wages) and hours worked. Different channels come into play in this circular relationship: productivity (or wages) impacts hours worked through either an income channel or a substitution channel, while returns to scale of hours worked depend on a fixed-cost channel or a fatigue channel. We estimate the two equations of this circular relationship, using the IV estimation method, on two separate datasets for advanced countries: a long-term (1890–2019) country panel database, and a country-industry panel for a shorter, more recent period (1995–2019). The main results are: (i) the income channel outweighs the substitution channel in the long term: increased productivity or higher wages reduce the number of hours worked; (ii) the fatigue channel outweighs the fixed-cost channel: a reduction in hours worked raises productivity (or hourly wages). According to our results, a productivity revival brought about by the digital revolution and resulting in the same productivity growth as was observed in the US from 1900 to 1975 would reduce hours worked to 25 h per week by the end of this century.

Suggested Citation

  • Gilbert Cette & Simon Drapala & Jimmy Lopez, 2023. "The Circular Relationship Between Productivity and Hours Worked: A Long-Term Analysis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(4), pages 650-664, December.
    • Handle: RePEc:pal:compes:v:65:y:2023:i:4:d:10.1057_s41294-023-00224-8
    DOI: 10.1057/s41294-023-00224-8
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    References listed on IDEAS

    as
    1. Magnus Reif & Mewael F. Tesfaselassie & Maik H. Wolters, 2021. "Technological Growth and Hours in the Long Run: Theory and Evidence," Economica, London School of Economics and Political Science, vol. 88(352), pages 1016-1053, October.
    2. Gilbert Cette & Yusuf Kocoglu & Jacques Mairesse, 2009. "Productivity Growth and Levels in France, Japan, the United Kingdom and the United States in the Twentieth Century," NBER Working Papers 15577, National Bureau of Economic Research, Inc.
    3. Maya Eden, 2021. "Time‐Inseparable Labor Productivity and the Workweek," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(3), pages 940-965, July.
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    8. Renaud Bourlès & Gilbert Cette & Anastasia Cozarenco, 2012. "Employment and Productivity: Disentangling Employment Structure and Qualification Effects," International Productivity Monitor, Centre for the Study of Living Standards, vol. 23, pages 44-54, Spring.
    9. 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.
    10. Alexander Bick & Nicola Fuchs-Schündeln & David Lagakos, 2018. "How Do Hours Worked Vary with Income? Cross-Country Evidence and Implications," American Economic Review, American Economic Association, vol. 108(1), pages 170-199, January.
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    12. Del Rey, Elena & Naval, Joaquín & Silva, José I., 2022. "Hours and wages: A bargaining approach," Economics Letters, Elsevier, vol. 217(C).
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    More about this item

    Keywords

    Productivity; Wages; Hours worked;
    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
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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