Munich Personal RePEc Archive

Trends in aggregate employment, hours worked per worker, and the long-run labor wedge

Epstein, Brendan and Mukherjee, Rahul and Finkelstein Shapiro, Alan and Ramnath, Shanthi (2020): Trends in aggregate employment, hours worked per worker, and the long-run labor wedge.

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Abstract

Hours worked are fundamentally important for aggregate economic activity, yet canonical macroeconomic models fail dramatically at tracking its long-run trends. We develop an intuitive and tractable extension of the canonical model that decomposes trend hours into extensive and intensive margins via household-side employment-attainment costs and firm-side employment adjustment costs. Its predictions track very well the trend behavior of hours, and its two underlying margins, in the United States and a host of OECD countries. Our framework is relevant for analyzing the long run labor-market effects of a number of factors such as productivity growth, and tax or labor-market reforms.

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