The supply of hours worked and fluctuations between growth regimes

Scientific Conference (2021)

Declining hours of work per worker in conjunction with a growing work force may give rise to fluctuations between growth regimes. This is shown in an overlapping generations model with two-period lived ... [more ▼]

Declining hours of work per worker in conjunction with a growing work force may give rise to fluctuations between growth regimes. This is shown in an overlapping generations model with two-period lived individuals endowed with Boppart-Krusell preferences (Boppart and Krusell (2020)). On the supply side, economic growth is due to the expansion of consumption-good varieties through endogenous research. A sufficiently negative equilibrium elasticity of the individual supply of hours worked to an expansion in the set of consumption-good varieties destabilizes the steady state so that equilibrium trajectories may fluctuate between two growth regimes, one with and the other without an active research sector. Fluctuations affect intergenerational welfare, the evolution of GDP, and the functional income distribution. A stabilization policy can shift the economy onto its steady-state path. Fluctuations arise for empirically reasonable parameter constellations. The economics of fluctuations between growth regimes is linked to the intergenerational trade of shares and their pricing in the asset market. [less ▲]

The Supply of Hours Worked and Endogenous Growth Cycles

E-print/Working paper (2020)

We show that declining hours of work per worker in conjunction with a growing work force may give rise to growth cycles. This is accomplished in an overlapping generations model where individuals are ... [more ▼]

We show that declining hours of work per worker in conjunction with a growing work force may give rise to growth cycles. This is accomplished in an overlapping generations model where individuals are endowed with Boppart-Krusell preferences (Boppart and Krusell (2020)), i. e., the wage elasticity of their supply of hours worked is negative. On the supply side, economic growth is due to the expansion of consumption-good varieties through endogenous research. We show that a sufficiently negative equilibrium elasticity of the individual supply of hours worked to an expansion in the set of consumption-good varieties opens up the possibility of growth cycles where the economy fluctuates between two regimes, one with and the other without an active research sector. We identify period-2 and period-3 cycles, conclude with Li and Yorke (1975) that cycles of any periodicity exists, and generalize our findings to period-n cycles. We show that the possibility of cycles occurs under empirically plausible conditions. Throughout, we emphasize that the economics of cycles is linked to the intergenerational trade of shares and their pricing in the asset market. [less ▲]