The Supply of Hours Worked and Endogenous Growth Cycles

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.