Hours Worked and Lifetime Earnings Inequality

Alexander Bick, Adam Blandin and Richard Rogerson

No 2024-024, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We document large differences in lifetime hours of work using data from the NLSY79 and argue that these differences are an important source of inequality in lifetime earnings. To establish this we develop and calibrate a rich heterogeneous agent model of labor supply and human capital accumulation that allows for heterogeneity in preferences for work, initial human capital and learning ability, as well as idiosyncratic shocks to human capital throughout the life-cycle. Our calibrated model implies that almost 20 percent of the variance in lifetime earnings is accounted for by differences in lifetime hours of work, with 90 percent of this effect due to heterogeneity in preferences. Higher lifetime hours contribute to lifetime earnings via two channels: a direct channel (more hours spent in production at given productivity) and a human capital channel (more hours spent investing in human capital, which increases future productivity). Between a third and a half of the effect of lifetime hours on lifetime earnings is due to the human capital channel. Our model implies that policies that limit long hours have important effects on both the mean and variance of lifetime earnings.

Keywords: lifetime earnings; hours worked; human capital; inequality (search for similar items in EconPapers)
JEL-codes: D15 E21 E24 J22 J24 J31 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2024-09-16
New Economics Papers: this item is included in nep-dge and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Hours Worked and Lifetime Earnings Inequality (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:98792

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DOI: 10.20955/wp.2024.024

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