The Leisure Gains from International Trade

Abstract

The average number of hours worked has been declining in many countries. If workers have preferences such that income effects outweigh substitution effects, then a welfare-improving response to rising income is to reduce labor supply to enjoy more leisure time. Using a multi-country Ricardian trade model, I derive an hours-to-trade elasticity that is composed by the wage (Marshallian) and trade elasticities. I estimate the hours-to-trade elasticity by exploiting exogenous income variation generated by trade. Findings suggest that a one percent increase in imports (as share of GDP) leads to a 0.17 percent decline in hours per worker. This implies dominating income effects backed by a wage elasticity of -0.16 and a trade elasticity close to unity. I quantify that the rise in trade openness between 1950 and 2014 explains, on average, 7.4 percent of the total decline in hours per worker in high-income countries.