The impact of disembodied technological progress on working hours

Mewael F. Tesfaselassie

No 2026, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The paper analyzes the effects of disembodied technological progress on steady state hours worked in the workhorse New-Keynesian model, which features a neoclassical labor market, and its extension that allows for equilibrium unemployment. Both versions of the model are shown to imply a positive effect of growth on hours. Thus they can rationalize the long-term trend decline in productivity growth and the average number of hours per person observed across major industrialized countries during the postwar period. In the workhorse model slower growth decreases hours worked by reducing the effective discount rate and thus increasing the price markup, which acts like a tax hike on labor supply. This effect vanishes when the inflation rate is zero, because of the constancy of the price markup. In the extended version, the price markup effect interacts with a negative capitalization effect, whereby slower growth decreases hours by reducing the effective discount rate and in turn increasing employment and the marginal rate of substitution between consumption and hours.

Keywords: productivity growth; working hours; employment; nominal price rigidity; trend inflation (search for similar items in EconPapers)
JEL-codes: E24 E31 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:2026

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