Technological Progress, the Supply of Hours Worked, and the Consumption-Leisure Complementarity

At least since 1870 hours worked per worker declined and real wages increased
in many of today’s industrialized countries. The dual nature of technological progress in
conjunction with a consumption-leisure complementarity explains these stylized facts.
Technological progress drives real wages up and expands the amount of available con-
sumption goods. Enjoying consumption goods increases the value of leisure. Therefore,
individuals demand more leisure and supply less labor. This mechanism appears in an
OLG-model with two-period lived individuals equipped with per-period utility func-
tions of the generalized log-log type proposed by Boppart-Krusell (2016). The optimal
plan is piecewise defined and hinges on the wage level. Technological progress moves a
poor economy out of a regime with low wages and an inelastic supply of hours worked
into a regime where wages increase further and hours worked continuously decline.