Structural Change in Labor Supply and Cross-Country Differences in Hours Worked / Alexander Bick, Nicola Fuchs-Schündeln, David Lagakos, Hitoshi Tsujiyama.

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Bick, Alexander

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w29099.Publication details: Cambridge, Mass. National Bureau of Economic Research 2021.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: This paper studies how structural change in labor supply along the development spectrum shapes cross-country differences in hours worked. We emphasize two main forces: sectoral reallocation from self-employment to wage work, and declining fixed costs of wage work. We show that these forces are crucial for understanding how the extensive margin (the employment rate) and intensive margin (hours per worker) of aggregate hours worked vary with income per capita. To do so we build and estimate a quantitative model of labor supply featuring a traditional self-employment sector and a modern wage-employment sector. When estimated to match cross-country data, the model predicts that sectoral reallocation explains more than half of the total hours decrease at lower levels of development. Declining fixed costs drive the rise in employment rates at higher levels of income per capita, and imply higher hours in the future, in contrast to the lower hours resulting from income effects and expansions in tax-and-transfer systems.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w29099 (Browse shelf(Opens below))	Not For Loan

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July 2021.

This paper studies how structural change in labor supply along the development spectrum shapes cross-country differences in hours worked. We emphasize two main forces: sectoral reallocation from self-employment to wage work, and declining fixed costs of wage work. We show that these forces are crucial for understanding how the extensive margin (the employment rate) and intensive margin (hours per worker) of aggregate hours worked vary with income per capita. To do so we build and estimate a quantitative model of labor supply featuring a traditional self-employment sector and a modern wage-employment sector. When estimated to match cross-country data, the model predicts that sectoral reallocation explains more than half of the total hours decrease at lower levels of development. Declining fixed costs drive the rise in employment rates at higher levels of income per capita, and imply higher hours in the future, in contrast to the lower hours resulting from income effects and expansions in tax-and-transfer systems.