Trends in Hours and Economic Growth

We study the impact of three different types of policy on the sectoral composition of employment and on the overall level of market employment: (1) regulations that reduce the efficiency of market production, such as administrative burdens on companies, (2) income transfers across population groups financed by taxes, and (3) public provision of services, also financed by taxes. We claim that the three types are being applied with different weight in OECD countries. Anglo-Saxon countries rely mainly on income transfers, social democracies, especially of the Scandinavian kind, provide large amounts of public services, and continental European countries regulate employment more than the others and have large tax-transfer programs. We develop a dynamic model of the allocation of time and calibrate the impact of each type of regulation by matching our parameters to data from these countries. We claim that the regulation of market activity effectively reduces total factor productivity in the market, and has implications for the dynamics of the allocation of time to the market and the home. Tax-transfer programs shift time from market production to home production, and the public provision of services effectively taxes non-service production to subsidise service production.