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Labor Supply in the Past, Present, and Future: a Balanced-Growth Perspective

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  • Timo Boppart
  • Per Krusell

Abstract

What explains how much people work? Going back in time, a main fact to address is the steady reduction in hours worked. The long-run data, for the U.S. as well as for other countries, show a striking pattern whereby hours worked fall steadily by a little below a half of a percent per year, accumulating to about a halving of labor supply over 150 years. In this paper, we argue that a stable utility function defined over consumption and leisure can account for this fact, jointly with the movements in the other macroeconomic aggregates, thus allowing us to view falling hours as part of a macroeconomy displaying balanced growth. The key feature of the utility function is an income effect (of higher wages) that slightly outweighs the substitution effect on hours. We also show that our proposed preference class is the only one consistent with the stated facts. The class can be viewed as an enlargement of the well-known “balanced-growth preferences” that dominate the macroeconomic literature and that demand constant (as opposed to falling) hours in the long run. The postwar U.S. experience, over which hours have shown no net decrease and which is the main argument for the use of “balanced-growth preferences”, is thus a striking exception more than a representative feature of modern economies.

Suggested Citation

  • Timo Boppart & Per Krusell, 2016. "Labor Supply in the Past, Present, and Future: a Balanced-Growth Perspective," NBER Working Papers 22215, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22215
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    References listed on IDEAS

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    1. Gene M. Grossman & Elhanan Helpman & Ezra Oberfield & Thomas Sampson, 2017. "Balanced Growth Despite Uzawa," American Economic Review, American Economic Association, vol. 107(4), pages 1293-1312, April.
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    8. Mark Aguiar & Erik Hurst, 2007. "Measuring Trends in Leisure: The Allocation of Time Over Five Decades," The Quarterly Journal of Economics, Oxford University Press, vol. 122(3), pages 969-1006.
    9. Huberman, Michael & Minns, Chris, 2007. "The times they are not changin': Days and hours of work in Old and New Worlds, 1870-2000," Explorations in Economic History, Elsevier, vol. 44(4), pages 538-567, October.
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    Citations

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    Cited by:

    1. Per Krusell & Jonna Olsson & Timo Boppart, 2017. "Labor Supply in the Future: Who Will Work?," 2017 Meeting Papers 157, Society for Economic Dynamics.
    2. Lindé, Jesper & Smets, Frank & Wouters, Rafael, 2016. "Challenges for Central Banks' Macro Models," CEPR Discussion Papers 11405, C.E.P.R. Discussion Papers.
    3. Marcin Bielecki, 2017. "Business cycles, innovation and growth: welfare analysis," Working Papers 2017-19, Faculty of Economic Sciences, University of Warsaw.
    4. Tobias Broer & Niels-Jakob H. Hansen & Per Krusell & Erik Öberg, 2016. "The New Keynesian Transmission Mechanism: A Heterogenous-Agent Perspective," NBER Working Papers 22418, National Bureau of Economic Research, Inc.
    5. Böhm, Sebastian & Grossmann, Volker & Strulik, Holger, 2017. "R&D-driven medical progess, health care costs, and the future of human longevity," Center for European, Governance and Economic Development Research Discussion Papers 325, University of Goettingen, Department of Economics.
    6. Benjamin Bridgman, 2016. "Engines of Leisure," BEA Working Papers 0137, Bureau of Economic Analysis.
    7. Andreas Irmen, 2017. "Technological progress, the supply of hours worked, and the consumption-leisure complementarity," PSE Working Papers halshs-01667017, HAL.
    8. Homburg, Stefan, 2017. "A Study in Monetary Macroeconomics," OUP Catalogue, Oxford University Press, number 9780198807537.
    9. Emi Nakamura & Jón Steinsson, 2017. "Identification in Macroeconomics," NBER Working Papers 23968, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • 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
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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