Measuring and Explaining International Differences in Hours Worked

Nicola Fuchs-Schuendeln, David Lagakos and Alexander Bick
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Nicola Fuchs-Schuendeln: Goethe University Frankfurt /Main

No 592, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: How do average hours worked vary with income per capita? Using international household survey data, we document that average hours worked per adult are substantially higher in poor countries than in rich countries. This pattern is shaped by differences along both the extensive margin (employment rates) and intensive margin (hours per employed). Employment rates are decreasing and convex in income per capita, while hours per employed are hump-shaped in income per capita. We explain these facts using a simple model with subsistence needs in preferences and heterogeneity in the cost of supplying labor across individuals. Countries differ only by aggregate productivity. The model predicts that as aggregate productivity falls and consumption nears the subsistence level, individuals with high costs of supplying labor become employed but supply relatively few hours. This leads to employment rates that are convex and decreasing in income, and hours worked per employed that are hump-shaped in income, as in the data. An implication of our model and empirical findings is that welfare differences across countries are substantially larger than suggested by income differences.

Date: 2015
New Economics Papers: this item is included in nep-pbe
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