Structural Change in Labor Supply and Cross-Country Differences in Hours Worked

Alexander Bick, Nicola Fuchs-Schündeln, David Lagakos and Hitoshi Tsujiyama
Authors registered in the RePEc Author Service: Nicola Fuchs-Schuendeln

No 29099, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E0 E24 O11 O41 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-isf, nep-lma and nep-mac
Note: DEV EFG
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Published as Alexander Bick & Nicola Fuchs-Schündeln & David Lagakos & Hitoshi Tsujiyama, 2022. "Structural Change in Labor Supply and Cross-Country Differences in Hours Worked," Journal of Monetary Economics, .

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Journal Article: Structural change in labor supply and cross-country differences in hours worked (2022)
Working Paper: Structural Change in Labor Supply and Cross-Country Differences in Hours Worked (2022)
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