Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/126569 
Year of Publication: 
2016
Series/Report no.: 
Kiel Working Paper No. 2026
Publisher: 
Kiel Institute for the World Economy (IfW), Kiel
Abstract: 
The paper analyzes the effects of disembodied technological progress on steady state hours worked in the workhorse New-Keynesian model, which features a neoclassical labor market, and its extension that allows for equilibrium unemployment. Both versions of the model are shown to imply a positive effect of growth on hours. Thus they can rationalize the long-term trend decline in productivity growth and the average number of hours per person observed across major industrialized countries during the postwar period. In the workhorse model slower growth decreases hours worked by reducing the effective discount rate and thus increasing the price markup, which acts like a tax hike on labor supply. This effect vanishes when the inflation rate is zero, because of the constancy of the price markup. In the extended version, the price markup effect interacts with a negative capitalization effect, whereby slower growth decreases hours by reducing the effective discount rate and in turn increasing employment and the marginal rate of substitution between consumption and hours.
Subjects: 
productivity growth
working hours
employment
nominal price rigidity
trend inflation
JEL: 
E24
E31
Document Type: 
Working Paper

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