Why are Average Hours Worked Lower in Richer Countries?

51 Pages Posted: 20 Apr 2020

See all articles by Alexander Bick

Alexander Bick

Arizona State University (ASU) - Economics Department

Nicola Fuchs-Schündeln

Goethe University Frankfurt

David Lagakos

University of California, San Diego (UCSD) - Department of Economics; National Bureau of Economic Research (NBER)

Hitoshi Tsujiyama

Goethe University Frankfurt

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Abstract

Why are average hours worked per adult lower in rich countries than in poor countries? Weconsider two natural explanations: income effects in preferences, in which leisure becomesmore valuable when income rises, and distortionary tax systems, which are more prevalentin richer countries. To assess the importance of these two forces, we build a simple modelof labor supply by heterogeneous individuals and calibrate it to match international data onlabor income taxation, government transfers relative to GDP, and hours worked per adult.The model predicts that income effects are the main driving force behind the decline ofaverage hours worked with GDP per capita. We reach a similar conclusion in an extendedmodel that matches cross-country patterns of labor supply along the extensive andintensive margins and of the prevalence of subsistence self-employment.

Keywords: income effects, hours worked, taxation

JEL Classification: E24, J22, O11

Suggested Citation

Bick, Alexander and Fuchs-Schündeln, Nicola and Lagakos, David and Tsujiyama, Hitoshi, Why are Average Hours Worked Lower in Richer Countries?. IZA Discussion Paper No. 13156, Available at SSRN: https://ssrn.com/abstract=3579249 or http://dx.doi.org/10.2139/ssrn.3579249

Alexander Bick (Contact Author)

Arizona State University (ASU) - Economics Department ( email )

Tempe, AZ 85287-3806
United States

Nicola Fuchs-Schündeln

Goethe University Frankfurt ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

David Lagakos

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hitoshi Tsujiyama

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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