Beyond GDP: Modelling Labour Supply as a ‘Free Time’ Trade-Off in a Multiregional Optimal Growth Model

29 Pages Posted: 2 Aug 2012

See all articles by Valentina Bosetti

Valentina Bosetti

Bocconi University; CMCC - Euro Mediterranean Centre for Climate Change

Frederic Ghersi

affiliation not provided to SSRN

Date Written: August 2, 2012

Abstract

In this paper we develop the standard utility function of a Ramsey-type optimal growth model to account for a ‘market-time’ vs. ‘free-time’ trade-off. To do so, we introduce a free-time preference coefficient that measures the utility gained by deviating from a maximum labor supply defined as the combination of a 95% labor force participation rate for the 20 to 69 year-old population, and 3000 annual working hours (50 effective 60-hour weeks). We calibrate this free-time preference coefficient for 12 world regions on statistical and projected data from the United Nations, the International Labor Organization and the OECD. We illustrate a prospective use of this modelling development by comparing the consequences of convergence of the free-time preference coefficients of all world regions to the contrasted Western European vs. United States value. Over the 21st century, compared to a business-as-usual trajectory defined by maintained regional disparities in free time preference, convergence to US free time preference induces a 0.3% decrease in global discounted labor market time, but a 4.2% increase in discounted global GDP sustained by a 2.5% increase in primary energy consumption that translates into a 1.7% increase in cumulated CO2-equivalent emissions; convergence to Western European free time preference decreases labor market time by 13.8%, GDP by 11.7%, primary energy consumption by 10.7% and cumulated CO2-equivalent emissions by 9.1%.

Keywords: Ramsey growth model, endogenous labour supply, utility of leisure, beyond GDP welfare valuation

JEL Classification: C0, O4

Suggested Citation

Bosetti, Valentina and Ghersi, Frederic, Beyond GDP: Modelling Labour Supply as a ‘Free Time’ Trade-Off in a Multiregional Optimal Growth Model (August 2, 2012). FEEM Working Paper No. 44.2012, Available at SSRN: https://ssrn.com/abstract=2122294 or http://dx.doi.org/10.2139/ssrn.2122294

Valentina Bosetti (Contact Author)

Bocconi University

Via Gobbi 5
Milan, 20136
Italy

CMCC - Euro Mediterranean Centre for Climate Change

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Frederic Ghersi

affiliation not provided to SSRN ( email )

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