Nobody to Play With - Labour Supply and Inequality Trends in the U.S.A. and elsewhere Lars Osberg Department of Economics Dalhousie University

How much do differences in hours worked matter for inequality and growth ? n within the OECD, significant differences in trend & level of average work hours. n Increases in working time in the USA accompanied by declining levels of social interaction n Inequality in working hours increasing n working hours have externalities for both work and play

Both individuals & firms have search/matching problem n Individuals - to enjoy fully leisure hours –locate compatible playmates HUGE VARIETY in leisure tastes –find time to play together n Firms - to maximize output & profit – group people with complementary skills into production teams especially important for highly specialized – synchronize work hours

Dual externalities to work hours n the more time that other individuals work, the harder it is for each person to find a leisure match –implication: lower marginal utility of leisure n the more time that other individuals work, the easier it is for firms to synchronize schedules – implication: higher marginal product labour n Uncoordinated Decisions + Externality –Multiple Equilibria ?? Optimality ??

Large International Differences - n Large differences in working time have emerged about same BUT n 1997 average hours of paid work per working age adult – Germany – France 980.6, – USA –8.6 hours of work per adult per week n Adding actual & unemployment difference = 7.6 hours

Average paid working hours per household adult n At all points in income distribution, Americans work more hours n international differential in hours of work significantly smaller at top of income distribution n In USA, relatively poor work harder for their relative poverty than elsewhere –general increase in hours over time, throughout income distribution

Leisure Externalities and Labour Supply

Externalities at Work & Play - Skilled & Unskilled

Implications n one possible equilibrium - working hours relatively equal n OR working hours diverge: –rising average hours if work hours coordination breaks down –greater increases in work time at top of income distribution –+ increasing hourly wage differentials accentuates trend to rising earnings inequality n Ambiguous Social Welfare Effects of Growth in Money Income