Timo Boppart and Per Krusell are wrong: involuntary unemployment exists and does matter
Timo Boppart and Per Krusell have written an interesting but flawed article about the long run decline in the average hours worked. As they do not account for changes in involuntary unemployment and do not even seem to know the concept they are led to an understanding of their (interesting!) data which is at odds with reality (look here for my proposal to incorporate flow data on unemployment into the operationalisation of the concept). In many countries the long run decline in average hours worked is not just due to voluntary decisions about labour supply by households but also by, compared with the period up to 1973, large and lasting increases in the level of (involuntary) unemployment. In many countries this level went up from, say, 2% in the sixties to levels of 8, 10, 15, 20 and 25% and over today, not even counting ‘broad’ unemployment. I’ve published some data here. Large voluntary declines of unemployment exist. But large involuntary declines also exist. It is totally ridiculous to state that the decline in average hours worked in the USA in the thirties (their graph 4 above) was a technology induced voluntary choice for leisure. See my article ‘neoclassical modelling as a strategy to unsee involuntary unemployment‘. And about the unfounded nonsense Robert Lucas states about ‘involuntary unemployment’ my ‘models and measurement in economics‘. It is also quite unsettling that they do not seem to understand that the decline of average hours in Germany after 1990 was due to Über-unemployment in East-Germany and not to any kind of voluntary decline while they also miss out on the recent increase in average hours worked (below, their graph 3a). And fail to mention the effect of French ‘shorter workweek’ government policies on average hours in France – same development in average hours but with a totally different cause and totally different consequences for prosperity and family life. Which means that their conclusions (average hours worked will fall in the future, too, because of choices made by households which will increase prosperity) might as well be flawed. We might wel need a New New Deal to enable this. At this moment, however, government policies are only aimed at increasing hours, especially for the 60+ generations.