Forces Shaping Hours Worked in the OECD, 1960–2004

Abstract

The goal of this paper is to examine the role of taxes and productivity growth as forces influencing market hours. To achieve this goal, the paper considers a calibrated growth model extended to include home production and subsistence consumption, both of which are found to be key features influencing market hours. The model is simulated for 15 OECD countries. The primary force driving changes in market hours is found to be changing labor income tax rates. Productivity catch-up relative to the United States is found to be an important secondary force. (JEL E24, H24, H31, J22, J24)

Structural transformation, marketization, and household production around the world

“…This statement applies to both estimations like Fang and Zhu (2012) and Moro et al (2015) and to calibrations like Ngai and Pissarides (2008), Rogerson (2008), andMcDaniel (2011). Calibrations of the growth model with household production deliver that household productivity stagnates in the U.S., which is also what our imputation implies.…”

“…This statement applies both to estimations like Rupert et al (1995), Fang and Zhu (2012), and Moro et al (2015) and to calibrations of the growth model with household production like Ngai and Pissarides (2008), Rogerson (2008) and McDaniel (2011). Most of such calibrations deliver what our imputation implies, that is, household labor productivity stagnates in the U.S.…”

“…Calibrations of the growth model with household production deliver that household productivity stagnates in the U.S., which is also what our imputation implies. The typical approach in the literature then is to postulate that the ratio of the labor productivities in the household relative to the market shows the same behavior around the world as in the U.S.; see for example Rogerson (2008) or McDaniel (2011. We find that this is born out of the data only for a minority of countries in our sample.…”

“…Most of such calibrations deliver what our imputation implies, that is, household labor productivity stagnates in the U.S. Regarding countries other than the U.S., a popular approach is to postulate that the ratio of the labor productivities in the household relative to the market shows the same behavior as in the U.S.; see for example Rogerson (2008) or McDaniel (2011). We find that among the countries for which we have long enough time series only a minority conforms with this pattern.…”

The Labor Wedge: MRS vs. MPN

“…McDaniel (2011) uses OECD data to update the tax rate series and consumption taxes are used to finance increased benefits, these benefits may distort labor supply choices beyond what it may be captured by effective tax rates. As a result, changes in benefits should be thought as a component of the tax-adjusted gap between the real wage and the MRS.…”