Endogenous Working Hours, Overlapping Generations and Balanced Neoclassical Growth

A balanced growth path that accounts for a decline in hours worked
per worker approximates the evolution of today’s industrialized countries since
1870. This stylized fact is explained in an OLG-model featuring two-period lived
individuals equipped with per-period utility functions of the generalized loglog
type proposed by Boppart and Krusell (2020) and a neoclassical production
sector. Technological progress drives real wages up and expands the amount
of consumption goods. The value of leisure increases, and the supply of hours
worked declines. Technological progress moves a poor economy out of a regime
with low wages and an inelastic supply of hours worked into a regime with high
wages and a declining supply of hours worked. The balanced growth path is
unique and stable. In the high wage regime, the equilibrium difference equation
is available in closed form. A balanced growth path with declining hours worked
may also be obtained with endogenous technological progress as in Romer (1986).