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Who should work how much?

Author

Listed:
  • Boppart, Timo
  • Krusell, Per
  • Olsson, Jonna

Abstract

A production efficiency perspective naturally leads to the prescription that more productive individuals should work more than less productive individuals. Yet, systematic differences in actual hours worked across high- and low-wage individuals are barely noticeable. We highlight that the insurance available to households is an important determinant behind this fact. Using a dynamic heterogeneous-agent model with insurance frictions, income effects calibrated to match aggregate hours across time and space, and financial frictions that deliver realistic wealth dispersion, we report stark effects of insurance: perfect insurance would raise aggregate labor productivity by 9.6 percent and decrease hours worked by 7.7 percent.

Suggested Citation

  • Boppart, Timo & Krusell, Per & Olsson, Jonna, 2024. "Who should work how much?," CEPR Discussion Papers 19437, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19437
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    More about this item

    Keywords

    Labor supply; Inequality; Wealth inequality; Incomplete markets;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • 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

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