Understanding Growth and Inequality Trends : The Role of Labour Supply in the USA and Germany

Between 1980 and 2000, average actual working hours per adult of working age rose by in the USA (to 1476) while falling by 170 in Germany to (973). These differentials are now enough to create significant differences in quality of life - and they imply that growth in per GDP may be a poor indicator of trends in average economic well-being and that trends in income inequality may misrepresent trends in the inequality of economic well-being. Recently, Bell and Freeman (2000) have argued that greater economic inequality in the creates greater incentives to individual labor supply, which are responsible for much of the gap in work effort between Americans and Germans. However, individual differentials average usual working hours largely arise from differences in workforce participation - among women and older men. Except for the extreme lower tail, the distribution of working hours of prime age males is essentially identical and constant over time in and the US. - which implies that the greater inequality of earnings in the USA has had noticeable incentive effect on the labor supply of workers