Leisure Time and the Sectoral Composition of Employment

Abstract

We observe the following patterns in the US economy during the period 1965-2015: (i) the rise of the service sector, (ii) the increase in leisure time, and (iii) the increase in recreational services. To display the last pattern, we measure the fraction of the value added of the service sector explained by the consumption of recreational services, and we show that it increases during this period. We explain these three patterns of structural change in a multisector growth model, where leisure time and the consumption of recreational services are complements. We show that this complementarity introduces a mechanism of structural change that contributes to explain the rise of the service sector and that also affects the labor supply. We measure the reduction in employment due to a tax increase to illustrate the effect on the labor supply of this mechanism.

Keywords: Sectoral composition, Leisure, Non-homothetic preferences, Elasticity of substitution, Biased technological progress

JEL Classification: O41, O47