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.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: CLM model; DLM model; Europe; hours worked per population; labor-market policy; long-run labor wedge; OECD countries; taxes; United States; U.S. tax puzzle.
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E60 - General; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor > J20 - General

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