The Leisure Gains from International Trade

January 19, 2024

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Format: Chicago

Agustin Velasquez. The Leisure Gains from International Trade, (USA: International Monetary Fund, 2024) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The average number of hours worked has been declining in many countries. This can be explained if workers have preferences with income effects outweighing substitution effects. Then, an optimal response to rising income is to reduce labor supply to enjoy more leisure. In this paper, I develop a novel structural link between trade and aggregate labor supply. Using a multi-country Ricardian trade model, I show that reducing trade barriers leads to fewer hours worked while being compatible with an increase in welfare. In addition, I derive an hours-to-trade elasticity and estimate it by exploiting exogenous income variation generated by aggregate trade. On average, I quantify that the rise in trade openness between 1950 and 2014 explains 7 percent of the total decline in hours per worker in high-income countries.

Subject: Consumption, Employment rate, Income, Labor, Labor supply, National accounts, Real wages

Keywords: Consumption, Employment rate, Global, Hours worked, Hours-to-trade elasticity, Income, International trade, Labor supply, Leisure, Marshallian elasticity, Real wages, Ricardian trade model, Trade openness, Trade share, Uncompensated elasticity

Publication Details

Pages:

66
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/016
Stock No:

WPIEA2024016
ISBN:

9798400265082
ISSN:

1018-5941

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