The Effect of Changes in Wages, GDP and Workers' Demographic Characteristics on Working Hours

In this study we estimate the effect of changes in the employee's offered wage - which is influenced by macroeconomic developments and changes in tax rates - on working hours, accounting for changes in the employee's personal circumstances (family status and composition, entering or exiting school, reaching the pension age and spousal income and employment). We use repeat observations of workers in Israeli labor-force surveys to identify workers at more than one point in time. With the help of these data, we also examine whether the elasticities differ between population groups distinguished by demographic characteristics, schooling, employment characteristics in the first period and family income. The estimation shows that wage changes have little effect on working hours and, among full-time employees, have no effect at all. In contrast, working hours are quite elastic to changes in GDP. Among men, other than those from low-income families, this elasticity surpasses the elasticity in the extensive margin. Among women, working hours' elasticity to GDP growth is positive only among new entrants to the labor market, those approaching the retirement age, and those in low-wage occupations. However, in these groups - about one-third of working women - the elasticity was twice that found among men