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Why Are Average Hours Worked Lower in Richer Countries?

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  • Bick, Alexander

    (Arizona State University)

  • Fuchs-Schündeln, Nicola

    (Goethe University Frankfurt)

  • Lagakos, David

    (National Bureau of Economic Research)

  • Tsujiyama, Hitoshi

    (Goethe University Frankfurt)

Abstract

Why are average hours worked per adult lower in rich countries than in poor countries? We consider two natural explanations: income effects in preferences, in which leisure becomes more valuable when income rises, and distortionary tax systems, which are more prevalent in richer countries. To assess the importance of these two forces, we build a simple model of labor supply by heterogeneous individuals and calibrate it to match international data on labor income taxation, government transfers relative to GDP, and hours worked per adult. The model predicts that income effects are the main driving force behind the decline of average hours worked with GDP per capita. We reach a similar conclusion in an extended model that matches cross-country patterns of labor supply along the extensive and intensive margins and of the prevalence of subsistence self-employment.

Suggested Citation

  • Bick, Alexander & Fuchs-Schündeln, Nicola & Lagakos, David & Tsujiyama, Hitoshi, 2020. "Why Are Average Hours Worked Lower in Richer Countries?," IZA Discussion Papers 13156, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp13156
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    1. Chang, Yongsung & Kim, Sun-Bin & Kwon, Kyooho & Rogerson, Richard, 2020. "Cross-sectional and aggregate labor supply," European Economic Review, Elsevier, vol. 126(C).

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    More about this item

    Keywords

    income effects; hours worked; 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
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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