Working Hours, Income Volatility and Public Sector Employment as Insurance

Poorer economies tend to have higher working hours per adult due to the incomeeffect. However, when controlling for resource abundance and public sectoremployment, the income effect weakens. We present a simple model to explainthis phenomenon: in resource-rich economies where income is volatile and publicand private social insurance are absent, individuals prefer more secure publicsector jobs, even if they offer lower wages than the private sector. In equilibrium,the wage gap is equal to the insurance premium, and individuals work longerhours to compensate for the loss in income. Recent data on working hourssupport this hypothesis: a higher share of public sector employment in resourcericheconomies is associated with longer working hours along both the extensiveand intensive margins