Endogenous labor supply and international trade

• Published date: 01 March 2017
• DOI: http://doi.org/10.1111/ijet.12118
• Date: 01 March 2017

doi: 10.1111/ijet.12118

Endogenous labor supply and international trade

Takanori Ago,∗Tadashi Morita,†Takatoshi Tabuchi‡and Kazuhiro Yamamoto§

Weconstruct an international tr ade model with an elastic labor supply and analyze the impacts

of technological progress on the equilibrium outcomes of working hours and economic welfare.

We show that the labor supply is inverted U-shaped with respect to technological progress. We

also show that welfare is U-shaped with respect to trade costs whereas welfare and technological

progress are positively related. We then show that working hours in developed countries are

longer in the first stages of development, but shorter in the second stages of development.

Key wor ds backward-bending labor supply, working hours, technological progress

JEL classification J22, R13

Accepted 6 June2016

1 Introduction

Per-capita working hours and labor productivity have followed contrasting trends over the past

150 years. Maddison (1991) showed that annual working hours per person have been decreasing in

developed countries since the Industrial Revolution. For example, annual working hours per person

almost halved from 2,984 in 1870 to 1,552 in 1989 in the UnitedKingdom, while a similar reduction

was seen in the United States (from 2,964 in 1870 to 1,604 in 1989). In contrast, labor productivity

has increased monotonically over the same periods (Maddison 1991). GDP per person-hour in the

UK (in 1985 US dollars) was 2.15 in 1870 as compared to 18.55 in 1989, while in the USA it was 2.06

in 1870 and increased to 23.87 in 1989.

From a longer-term perspective, however, Blanchard (1994) documented that total working

hours in Europe actually peaked around the beginning of the Industrial Revolution, in comparison

with totals for the previous 800 years. In fifteenth-century England and the Netherlands as well as in

post-emancipation Russia, the total annual labor days of a worker were just 200–210. The number

increased to 264 in late thirteenth-century England, sixteenth-century Poland, and mid-nineteenth-

∗School of Commerce, Senshu University.

†Faculty of Economics, Kindai University.

‡Faculty of Economics, University of Tokyo, Tokyo, Japan, and RIETI. Email: ttabuchi@e.u-tokyo.ac.jp

§Graduate School of Economics, Osaka University.

This paper is based upon Ago et al. (2014). We thank A.A. Batabyal, Y.-L. Cheng, R. Ito, M. Fujita, N. Jinji, K. Kawata,

M. Kohara, T. Mori, M. Morikawa, S. Mun, K. Nagamachi, S.-K. Peng, M. Sasaki, H. Takatsuka, D.-Z. Zeng as well as

seminar audiences at RIETI, TohokuUniversity, Kyoto University, Kansai Labor Economics Workshop,Japan Soceity of

InternationalEconomics in Kansai, Asia Pacific TradeSeminars, Academia Sinica, European Regional Science Association,

ARSC annual meeting, and NARSC annual meeting for helpful comments and discussions. This work was supported by

RIETI and JSPS KAKENHI: grant numbers 25870925, 15H03348 and 16H03615.

International Journal of Economic Theory 13 (2017) 73–94 © IAET 73

International Journal of Economic Theory

Endogenous labor supply and trade Takanori Ago etal.

Figure 1 Workinghours per year, 1950–2012 (data source OECD.Stat Extracts: http://stats.oecd.org/).

century Spain. A new pattern of labor and leisure then emerged with the Industrial Revolution,

where the new norm was set at about 10 hours a day, or 300 days a year. Thus, it is arguable that

working hours started to increase during the Industrial Revolution. Indeed, Voth (2003) stated that

“during the Industrial Revolution, Europeans began to work longer – much longer. The age of the

‘dark satanic mills’ saw adults toiling more than 3,200 hours per year, and child labor and women’s

work were common.”

Voth (1998, 2003) also reported that the Industrial Revolution triggered an increase in annual

working hours per person during the second half of the eighteenth century in England (from 2,763

in 1750 to 3,501 in 1800). Voth(2003) further showed that working hours in England have displayed

an inverted U-shaped curve over the past three centuries: increasing in the eighteenth century and

then decreasing in the nineteenth and twentieth centuries. Similarly, Ngai and Pissarides (2008)

showed that before the twentieth century, working hours in the USA were trended upward, at least

temporarily.1Nevertheless,as shown in Figure 1, the second half of the twentieth century witnessed a

decreasing trend in annual working hours globally.In summar y, after the beginning of the Industrial

Revolution, working hours first increased and since then have been steadily decreasingto date.

Working hours vary not only over time, but also across countries. For example, average annual

working hours per person in 2012 were 1,393 in Germany, 1,430 in Denmark, 1,654 in the UK, and

1,790 in the USA. In contrast, average annual working hours per person in 2012 were 2,029 in Chile,

2,034 in Greece, 2,163 in Korea, and 2,226 in Mexico. Thus, in these countries, working hours were

relatively long compared to those in more developed countries. Indeed, we show in Section 4 that

working hours and labor productivity are negatively related. That is, working hours are short in

developed countries with high labor productivity, but long in developing countries with low labor

1De Vries (1994) called the increase in working hours in the eighteenth century in the UK an “Industrious Revolution.”

He argued that since the variety of consumption goods had increased during this period, workers workedharder in order

to earn more income to pay for the growing number of consumption goods available.

74 International Journal of Economic Theory 13 (2017) 73–94 © IAET