POLICY ANALYSIS IN A MATCHING MODEL WITH INTENSIVE AND EXTENSIVE MARGINS

The large differences in hours of work across rich countries reflect large differences in both employment to population ratios and hours per worker. We imbed the canonical model of labor supply into a matching model to produce a model with operative intensive and extensive margins, and assess the implications of several policies for changes along the two margins. Tax and transfer policies lead to decreases along both margins, whereas regulations that increase the cost of creating or maintaining a job may lead to decreases in employment, but necessarily lead to increases in hours per worker. Copyright © (2009) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.