Hours Worked With and Without Capital Income

Christine Ostrowski and Jeffrey Campbell

No 670, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This paper compares business cycle fluctuations in hours worked by households with substantial capital income and without any capital income. We find that hours worked by households at the 95th percentile of the capital-labor income ratio, or "high-saving hours worked," have a significantly greater variance and are more responsive to the business cycle than hours worked by households without any capital income, or "no-saving hours worked." This difference is seen most dramatically in the 2001 and 2008 recessions and subsequent recoveries. Similarly, hours worked per employed adult, the employment rate, and the labor force participation rate of high-saving households have greater variances and are more responsive to the business cycle than their no-saving counterparts. In particular, the variance of the labor force participation series is 282 percent of the analogous variance for households without capital income. In our sample, which is restricted to households with labor income above the poverty line and with capital income below $50,000, the 95th percentile corresponds to a capital-labor income ratio of 14 percent. Thus, this exercise is not a comparison of anomalous households at the edges of the income and wealth distribution; rather, our results reflect differences between middle class households.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:670

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