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Market Work, Home Production, Consumer Demand and Unemployment among the Unskilled

  • Melanie Lührmann

    ()

  • Matthias Weiss

    ()

    (Munich Center for the Economics of Aging (MEA))

We propose and test a general equilibrium model in which longer working time and higher labor force participation lead to a fall in unemployment. Longer working hours and higher labor force participation have two direct effects: People have higher incomes and less (leisure) time. This has implications for the composition of consumer demand, since people spend less time on home production. Instead, they outsource more domestic tasks to the market. Consumer demand shifts toward unskill-intensive goods. The relative demand for unskilled labor rises and unemployment falls. We test our model in two ways: First, we study the link between labor market partici- pation, home production and the demand for household and similar services using the German time use survey conducted in 1991/92. Second, we use cross-country time- series data on OECD countries between 1980 and 2003 to directly examine the link between labor force participation and the unemployment rate. The empirical results corroborate the predictions from the theoretical model.

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Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 06101.

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Date of creation: 12 Jan 2006
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Handle: RePEc:mea:meawpa:06101
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  1. Tilman Bruck & John P. Haisken-De New & Klaus Zimmermann, 2006. "Creating low skilled jobs by subsidizing market-contracted household work," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 899-911.
  2. Jennifer Hunt, 1999. "Has Work-Sharing Worked In Germany?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 117-148, February.
  3. Matthias Weiss & Alfred Garloff, 2005. "Skill-Biased Technological Change and Endogenous Benefits : the Dynamics of Unemployment and Wage Inequality," Working Papers of the Research Group Heterogenous Labor 05-08, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.
  4. Michael Hurd & Susann Rohwedder, 2003. "The Retirement-Consumption Puzzle: Anticipated and Actual Declines in Spending at Retirement," NBER Working Papers 9586, National Bureau of Economic Research, Inc.
  5. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, June.
  6. Weiss, Matthias, 2008. "Skill-biased technological change: Is there hope for the unskilled?," Economics Letters, Elsevier, vol. 100(3), pages 439-441, September.
  7. F. Thomas Juster & James P. Smith, 2004. "Improving the Quality of Economic Data: Lessons from the HRS and AHEAD," Labor and Demography 0402010, EconWPA.
  8. Mark Aguiar & Erik Hurst, 2004. "Consumption vs. Expenditure," NBER Working Papers 10307, National Bureau of Economic Research, Inc.
  9. Ronald Schettkat & Wiemer Salverda, 2004. "Demand Patterns and Employment Growth, Consumption and Services in France, Germany, the Netherlands, the United Kingdom and the United States," DEMPATEM Working Papers wp13, AIAS, Amsterdam Institute for Advanced Labour Studies.
  10. Winter, Joachim, 0000. "Bracketing effects in categorized survey questions and the measurement of economic quantities," Sonderforschungsbereich 504 Publications 02-35, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
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