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Endogenous working hours, overlapping generations, and balanced neoclassical growth

Published online by Cambridge University Press:  17 January 2025

Andreas Irmen Open the ORCID record for Andreas Irmen [Opens in a new window]
Andreas Irmen*
Affiliation:
Department of Economics and Management, University of Luxembourg, Luxembourg, and CESifo, Munich, Germany
*
Email: andreas.irmen@uni.lu
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Abstract

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 overlapping generations (OLG) model featuring two-period lived individuals equipped with per-period utility functions of the generalized log-log 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).

Keywords

Technological changecomparative economic developmentendogenous labor supplyneoclassical endogenous growthOLG modelD15J22O33O41

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Type
Articles
Information
Macroeconomic Dynamics , Volume 29 , 2025 , e70
Copyright
© The Author(s), 2025. Published by Cambridge University Press

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