Why are Average Hours Worked Lower in Richer Countries?

50 Pages Posted: 5 May 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

Multiple version iconThere are 4 versions of this paper

Date Written: 2020

Abstract

Why are average hours worked per adult lower in rich countries than in poor countries? We consider two natural explanations: income effects in preferences, in which leisure becomes more valuable when income rises, and distortionary tax systems, which are more prevalent in richer countries. To assess the importance of these two forces, we build a simple model of labor supply by heterogeneous individuals and calibrate it to match international data on labor 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 of average hours worked with GDP per capita. We reach a similar conclusion in an extended model that matches cross-country patterns of labor supply along the extensive and intensive margins and of the prevalence of subsistence self-employment.

Keywords: hours worked, income effects, taxation

JEL Classification: E240, J220, O110

Suggested Citation

Bick, Alexander and Fuchs-Schündeln, Nicola and Lagakos, David and Tsujiyama, Hitoshi, Why are Average Hours Worked Lower in Richer Countries? (2020). CESifo Working Paper No. 8251, Available at SSRN: https://ssrn.com/abstract=3593166 or http://dx.doi.org/10.2139/ssrn.3593166

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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