Extensive and Intensive Margins of Labour Supply: Work and Working Hours in the US, the UK and France*

Abstract

This paper provides a new analysis of the main stylised facts underlying the evolution of labour supply at the extensive and intensive margins in three countries: the United States, the United Kingdom and France. We propose a definition of the extensive and intensive margins corresponding respectively to the employment rate and to hours when employed. This definition is robust to the choice of the reference period and we develop a new statistical decomposition that provides bounds on changes at these margins. We focus on longer-run labour supply changes over the period 1977 to 2007 and abstract from the shorter-run impact of recessions. Examining secular changes over this period, we show that both margins matter in explaining changes in total hours. We then provide a detailed analysis across countries and across time by demographic type. Given the large systematic differences we uncover in the importance of these margins by age and gender, it is unlikely that a single explanation will suffice to account for the macroeconomic evolutions in the three countries. Policy points• Total hours of work increased strongly in the US, were stable in the UK and fell back in France over the three decades up to 2007. This appears to have been driven by increasing participation and stable hours in the US, increasing participation and declining hours in the UK, and falling participation and hours in France. These changes highlight the potential importance of incentives in the tax and welfare system in explaining differences in hours worked and employment across countries.• At older ages, men in the UK and the US exhibit very similar employment rates up to 65, when the British experience a larger drop than the Americans, whereas French male employment rates diverge from age 55. Incentives in pension and social security provisions are likely to play a central role in explaining differences across countries.• Among 16-to 29-year-olds, France stands out with much higher nonemployment rates than both the US and the UK. Much of the difference arises from the possibility of combining education and training with work. Young French people who are studying are generally not working, whereas young Britons and Americans are much more likely to be both working and in education. The balance between incentives to work and study is a key area for policy analysis.• Our account of the secular changes in employment and hours in the UK, France and the US over the three decades up to 2007 shows some clear trends and points to some possible explanations, but it also raises a number of puzzles. The resolution of these puzzles calls for a detailed analysis of effective incentives in the tax and benefit system, how they have changed over time, and how individuals and families have responded. Given the large heterogeneity by age and sex that we document, it is unlikely that a single explanation will account for these evolutions.

Labour Supply and the Extensive Margin

“…Davis and Henrekson (2004) note the importance of household production in interpreting these effects. In Blundell et al (2011), we develop a life-cycle aggregation framework and apply it to the UK using a consistent series on marginal taxes, incomes, hours of work, wages and consumption for a representative sample of households. We focus on individuals aged 30 to 54.…”

Estimating a Consumer Demand System of Energy, Mobility and Leisure: A Microdata Approach for Germany

“…Blundell, Bozio, and Laroque, 2011). The estimates of the Almost Ideal Demand System referring to leisure demand or accordingly to labor supply are interpreted as elasticities at the intensive margin, while the extensive labor market participation elasticities are estimated in a preceding discrete choice model, which is then linked to the demand system and used for selectivity correction.…”

Labor Supply Shocks, Native Wages, and the Adjustment of Local Employment*

“…11 See, e.g., MaCurdy (1981) and Chetty et al (2011) who estimate the labor supply elasticity at the intensive margin or Blundell, Bozio, and Laroque (2013) who estimate the elasticity at the extensive margin. 12 Heterogeneity in geographical mobility may have different reasons.…”