TY - JOUR
T1 - Structural change in labor supply and cross-country differences in hours worked
AU - Bick, Alexander
AU - Fuchs-Schündeln, Nicola
AU - Lagakos, David
AU - Tsujiyama, Hitoshi
N1 - Funding Information:
We thank Georg Dürnecker for providing us with data on commuting, and Isaac Otoo and Paul Reimers for outstanding research assistance. For helpful comments and assistance we thank Timo Boppart, Peter Egger, Per Krusell, Kjetil Storesletten, Nora Strecker, Stephen Terry, Johanna Wallenius, and audiences at Athens, BI Norwegian Business School, Bocconi, Bonn, the CEPR Annual Macro Conference, Columbia, CREI, the Federal Reserve Bank of St. Louis, Florida, Goethe University Frankfurt, Hitotsubashi University, the IFS, the IIES Stockholm, Johns Hopkins SAIS, Melbourne, Monash, MOVE Barcelona, Oslo, Queensland, the Reserve Bank of Australia, the SED Annual Meetings, Sciences Po, the STEG Annual Conference, Stockholm School of Economics, the T2M conference, University College Dublin, Vienna, Western Australia, Yale and Zurich. Fuchs-Schündeln gratefully acknowledges financial support from the European Research Council under the ERC Consolidator grant no. 815378 and from the DFG under the Leibniz-Preis. All potential errors are our own.
Publisher Copyright:
© 2022 Elsevier B.V.
PY - 2022
Y1 - 2022
N2 - This paper studies how structural change in labor supply along the development spectrum shapes cross-country differences in hours worked. We emphasize two main forces: sectoral reallocation from self-employment to wage work, and declining fixed costs of wage work. We show that these forces are crucial for understanding how the extensive margin (the employment rate) and intensive margin (hours per worker) of aggregate hours worked vary with income per capita. To do so we build and estimate a quantitative model of labor supply featuring a traditional self-employment sector and a modern wage-employment sector. When estimated to match cross-country data, the model predicts that sectoral reallocation explains more than half of the total hours decrease at lower levels of development. Declining fixed costs drive the rise in employment rates at higher levels of income per capita, and imply higher hours in the future, in contrast to the lower hours resulting from income effects and expansions in tax-and-transfer systems.
AB - This paper studies how structural change in labor supply along the development spectrum shapes cross-country differences in hours worked. We emphasize two main forces: sectoral reallocation from self-employment to wage work, and declining fixed costs of wage work. We show that these forces are crucial for understanding how the extensive margin (the employment rate) and intensive margin (hours per worker) of aggregate hours worked vary with income per capita. To do so we build and estimate a quantitative model of labor supply featuring a traditional self-employment sector and a modern wage-employment sector. When estimated to match cross-country data, the model predicts that sectoral reallocation explains more than half of the total hours decrease at lower levels of development. Declining fixed costs drive the rise in employment rates at higher levels of income per capita, and imply higher hours in the future, in contrast to the lower hours resulting from income effects and expansions in tax-and-transfer systems.
KW - Employment rates
KW - Hours worked
KW - Labor supply
KW - Structural change
UR - http://www.scopus.com/inward/record.url?scp=85131374815&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85131374815&partnerID=8YFLogxK
U2 - 10.1016/j.jmoneco.2022.05.007
DO - 10.1016/j.jmoneco.2022.05.007
M3 - Article
AN - SCOPUS:85131374815
JO - Carnegie-Rochester Confer. Series on Public Policy
JF - Carnegie-Rochester Confer. Series on Public Policy
SN - 0304-3932
ER -