Who should work how much?

Timo Boppart, Per Krusell and Jonna Olsson

No 19437, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: A production efficiency perspective naturally leads to the prescription that more productive individuals should work more than less productive individuals. Yet, systematic differences in actual hours worked across high- and low-wage individuals are barely noticeable. We highlight that the insurance available to households is an important determinant behind this fact. Using a dynamic heterogeneous-agent model with insurance frictions, income effects calibrated to match aggregate hours across time and space, and financial frictions that deliver realistic wealth dispersion, we report stark effects of insurance: perfect insurance would raise aggregate labor productivity by 9.6 percent and decrease hours worked by 7.7 percent.

Keywords: Inequality; Incomplete markets; Labor supply; Wealth inequality (search for similar items in EconPapers)
JEL-codes: E21 E24 J22 (search for similar items in EconPapers)
Date: 2024-09
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