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Beyond GDP: Modelling Labour Supply as a ‘Free Time’ Trade-off in a Multiregional Optimal Growth Model

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Listed:
  • Valentina Bosetti

    (FEEM, Fondazione Eni Enrico Mattei, and CMCC Centro Euro-Mediterraneo per i Cambiamenti Climatici)

  • Frédéric Ghersi

    (CIRED – Centre International de Recherche sur l’Environnement et le Développement)

Abstract

In this paper we develop the standard utility function of a Ramsey-type optimal growth model to account for a ‘market-time’ vs. ‘free-time’ trade-off. To do so, we introduce a free-time preference coefficient that measures the utility gained by deviating from a maximum labour supply defined as the combination of a 95% labour force participation rate for the 20 to 69 year-old population, and 3000 annual working hours (50 effective 60-hour weeks). We calibrate this free-time preference coefficient for 12 world regions on statistical and projected data from the United Nations, the International Labour Organisation and the OECD. We illustrate a prospective use of this modelling development by comparing the consequences of convergence of the free-time preference coefficients of all world regions to the contrasted Western European vs. United States value. Over the 21st century, compared to a business-as-usual trajectory defined by maintained regional disparities in free time preference, convergence to US free time preference induces a 0.3% decrease in global discounted labour market time, but a 4.2% increase in discounted global GDP sustained by a 2.5% increase in primary energy consumption that translates into a 1.7% increase in cumulated CO2-equivalent emissions; convergence to Western European free time preference decreases labour market time by 13.8%, GDP by 11.7%, primary energy consumption by 10.7% and cumulated CO2-equivalent emissions by 9.1%.

Suggested Citation

  • Valentina Bosetti & Frédéric Ghersi, 2012. "Beyond GDP: Modelling Labour Supply as a ‘Free Time’ Trade-off in a Multiregional Optimal Growth Model," Working Papers 2012.44, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2012.44
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    References listed on IDEAS

    as
    1. Valentina Bosetti & Carlo Carraro & Marzio Galeotti & Emanuele Massetti & Massimo Tavoni, 2006. "WITCH. A World Induced Technical Change Hybrid Model," Working Papers 2006_46, Department of Economics, University of Venice "Ca' Foscari".
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    3. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 28(Jul), pages 2-13.
    4. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695, Elsevier.
    5. Nordhaus, William D & Yang, Zili, 1996. "A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies," American Economic Review, American Economic Association, vol. 86(4), pages 741-765, September.
    6. Alberto Alesina & Edward L. Glaeser & Bruce Sacerdote, 2005. "Work and Leisure in the U.S. and Europe: Why So Different?," NBER Working Papers 11278, National Bureau of Economic Research, Inc.
    7. Valentina Bosetti & Carlo Carraro & Marzio Galeotti & Emanuele Massetti & Massimo Tavoni, 2006. "A World Induced Technical Change Hybrid Model," The Energy Journal, , vol. 27(2_suppl), pages 13-37, June.
    8. Finn Kydland & Edward C. Prescott, 1980. "A Competitive Theory of Fluctuations and the Feasibility and Desirability of Stabilization Policy," NBER Chapters, in: Rational Expectations and Economic Policy, pages 169-198, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Ramsey Growth Model; Endogenous Labour Supply. Utility of Leisure; Beyond GDP Welfare Valuation;
    All these keywords.

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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