Labor supply in the past, present, and future
Timo Boppart, Professor of Macroeconomics and Political Economy at our department, delivered his inaugural lecture entitled "Labor supply in the past, present, and future".
At his inaugural lecture, Timo Boppart, who joined the Department of Economics as Professor of Macroeconomics and Political Economy in August 2024, presented key insights from his recent work on labor supply.
Known for challenging conventional macroeconomic theories, Boppart offered the audience one of the discipline’s most enduring puzzles: in an era of relentless productivity growth and soaring real wages, why do we still work roughly the same number of hours as our grandparents, or in many places considerably fewer?
“Who works, who should work, and how many hours should our society work?” Boppart asked the audience. These are not abstract questions, they shape tax policy, inequality debates, and our very vision of progress. Yet labor supply, also known as the willingness of people, to trade time for income, remains strangely neglected in mainstream macroeconomics. Demand-side shocks dominate business-cycle analysis, while the supply side is often assumed away as a dull constant. Boppart has spent his career arguing that this neglect is a mistake, and the long-run data on hours worked demand far more attention than literature has traditionally given them.
Constant Hours Despite Rising Wages
The stylized fact that launched a thousand models is simple. In the postwar United States, average annual hours per worker (aged 15–64) have hovered remarkably close to 1,300 for decades, showing no clear upward or downward trend despite wages growing exponentially. Standard theory finds this constancy baffling. Higher wages pull in two directions: the substitution effect makes work more attractive relative to leisure, encouraging longer hours, the income effect does the opposite, once richer, people can “afford” more free time. For hours to remain trendless in the very long run, the two effects must precisely cancel each other out. The classic solution, immortalized by King and Rebelo in the 1980s, is a very particular form of preferences in which the income effect on leisure exactly offsets the substitution effect driven by steady productivity growth. These preferences became the workhorse of modern macro models.
Yet the American exception is exactly that, an exception. When one looks across countries or further back in history, a very different picture emerges. From 1950 to the present, average hours in most advanced economies have drifted downward, often at a steady pace of around 0.4 to 0.5 percent per year. Boppart showed compelling charts: moderate but persistent declines in Sweden, Germany, France, and many others. Even the United States, the poster child for constant hours, may now be joining the trend.
Can steadily falling hours be reconciled with a stable utility function and a balanced growth path for consumption and wages? For decades the answer seemed to be no, unless one abandoned the very preferences that delivered the American constancy. Boppart and his co-authors have now overturned that conclusion. In a series of recent papers, they fully characterize a broader class of preferences that allow hours to fall along a balanced growth path. They determine that key parameter is v: the fraction of each productivity gain that people choose to take in the form of more leisure rather than more consumption. A modest ν (around 0.2 ) is all it takes. With labor productivity growing at the historical 2 percent per year, hours naturally decline by about 0.4 percent annually, precisely the rate observed in the data.
Why We May Work Less in the Future
If people work fewer hours, it’s not a bad sign. It usually means they’re getting more done in each hour. When incomes rise, people often choose to enjoy more free time – more than literature had led us to believe.
Boppart then turned to a longstanding debate: can taxes explain the transatlantic hours gap and the secular decline? Edward Prescott famously argued in 2004 that differences in marginal tax rates could account for why Europeans work less than Americans. There is undoubtedly some truth to the tax story, but Boppart cautioned that it struggles to explain pre-war trends and assumes revenues are rebated lump-sum.
Looking ahead, Boppart is willing to make a prediction: hours worked will continue to fall, even in the United States. Participation rates cannot rise forever, and the same forces that drove the secular decline elsewhere are still at work. He is not alone in this view. Greg Mankiw has suggested that higher future taxes and greater prosperity will both shorten workweeks, while economic historian Joel Mokyr expects advanced technology to take over tedious tasks, leaving humans free to work less unless they choose otherwise.
In his concluding remarks, Boppart reiterated his core message. As labor productivity keeps rising, average hours are likely to keep falling, including in the United States. If that prediction proves correct, strong income effects on labor supply will have to be taken seriously again. Macroeconomic models, tax analysis, and our understanding of technological progress will all need to adjust. And if hours stabilize instead? Then perhaps the era of powerful income effects really is behind us. Either way, the question of labor supply, long treated as a sideshow, is moving back to center stage, exactly where Timo Boppart has always argued it belongs.