Why are Average Hours Worked Lower in Richer Countries?
51 Pages Posted: 20 Apr 2020
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: Suggested Citation