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Trends in aggregate employment, hours worked per worker, and the long-run labor wedge

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  • Epstein, Brendan
  • Mukherjee, Rahul
  • Finkelstein Shapiro, Alan
  • Ramnath, Shanthi

Abstract

Hours worked are fundamentally important for aggregate economic activity, yet canonical macroeconomic models fail dramatically at tracking its long-run trends. We develop an intuitive and tractable extension of the canonical model that decomposes trend hours into extensive and intensive margins via household-side employment-attainment costs and firm-side employment adjustment costs. Its predictions track very well the trend behavior of hours, and its two underlying margins, in the United States and a host of OECD countries. Our framework is relevant for analyzing the long run labor-market effects of a number of factors such as productivity growth, and tax or labor-market reforms.

Suggested Citation

  • Epstein, Brendan & Mukherjee, Rahul & Finkelstein Shapiro, Alan & Ramnath, Shanthi, 2020. "Trends in aggregate employment, hours worked per worker, and the long-run labor wedge," MPRA Paper 99289, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:99289
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    References listed on IDEAS

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    More about this item

    Keywords

    CLM model; DLM model; Europe; hours worked per population; labor-market policy; long-run labor wedge; OECD countries; taxes; United States; U.S. tax puzzle.;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

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