The Circular Relationship Between Productivity and Hours Worked: A Long-Term Analysis

Gilbert Cette (), Simon Drapala () and Jimmy Lopez ()
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Gilbert Cette: NEOMA - Neoma Business School
Simon Drapala: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - ENPC - École nationale des ponts et chaussées - IP Paris - Institut Polytechnique de Paris
Jimmy Lopez: LEDi - Laboratoire d'Economie de Dijon [Dijon] - UB - Université de Bourgogne - UBFC - Université Bourgogne Franche-Comté [COMUE]

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Abstract: We analyze the circular relationship between productivity (or wages) and hours worked. Different channels come into play in this circular relationship: productivity (or wages) impacts hours worked through either an income channel or a substitution channel, while returns to scale of hours worked depend on a fixed-cost channel or a fatigue channel. We estimate the two equations of this circular relationship, using the IV estimation method, on two separate datasets for advanced countries: a long-term (1890-2019) country panel database, and a country-industry panel for a shorter, more recent period (1995-2019). The main results are: (i) the income channel outweighs the substitution channel in the long term: increased productivity or higher wages reduce the number of hours worked; (ii) the fatigue channel outweighs the fixed-cost channel: a reduction in hours worked raises productivity (or hourly wages). According to our results, a productivity revival brought about by the digital revolution and resulting in the same productivity growth as was observed in the US from 1900 to 1975 would reduce hours worked to 25 h per week by the end of this century.

Keywords: Hours worked; Wages; Productivity (search for similar items in EconPapers)
Date: 2023
Note: View the original document on HAL open archive server: https://hal.science/hal-05718408v1
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Published in Comparative Economic Studies, 2023, 65 (4), pp.650-664. ⟨10.1057/s41294-023-00224-8⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:hal-05718408

DOI: 10.1057/s41294-023-00224-8

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