Heterogeneity and long-run changes in aggregate hours and the labor wedge |
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| Institution: | 1. University of Western Ontario, Department of Economics, Social Science Center, Room 4071, London, Ontario, Canada N6A 5C2;2. Bank of Canada, Canada;1. SISSA — International School for Advanced Studies, Via Bonomea 265, 34136 Trieste, Italy;2. Department of Mathematics, Stanford University, 450 Serra Mall, Stanford, CA 94305, USA;1. Faculty of Environmental Sciences, Czech University of Life Sciences, Prague, Kamýcká 129, 165 21 Prague 6, Czech Republic;2. Institute of Chemical Technology, Prague, Technická 5, 166 28 Prague 6, Czech Republic;1. Department of Economics, Mount Allison University, 144 Main Street, Sackville, NB E4L 1A7, Canada;2. Department of Economics, Vanderbilt University, VU Station B #351819, 2301 Vanderbilt Place, Nashville, TN 37235-1819, USA;1. Department of Economics, Pennsylvania State University, United States;2. Department of Economics, University of Maryland, United States;3. Research Department, Federal Reserve Bank of Kansas City, United States;1. Finance Discipline, University of Wollongong, Wollongong, NSW, 2522, Australia;2. Department of Finance, Deakin University, Burwood, VIC, 3125, Australia |
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| Abstract: | From 1961 to 2007, U.S. aggregate hours worked increased and the labor wedge—measured as the discrepancy between a representative household?s marginal rate of substitution and the marginal product of labor—declined substantially. The labor wedge is negatively related to hours and is often attributed to labor income taxes. However, U.S. labor income taxes increased since 1961. We examine a model with gender and marital status heterogeneity which accounts for the trends in the U.S. hours and the labor wedge. Apart from taxes, the model?s labor wedge reflects non-distortionary cross-sectional differences in households? hours worked and productivity. We provide evidence that household heterogeneity is important for long-run changes in labor wedges and hours in other OECD economies. |
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| Keywords: | Labor wedge Household aggregation Female and male labor supply Gender wage gap Labor income taxation |
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