Beyond GDP: Modelling Labour Supply as a ‘Free Time’ Trade-off in a Multiregional Optimal Growth Model
Valentina Bosetti, Frédéric Ghersi
Ramsey Growth Model, Endogenous Labour Supply. Utility of Leisure, Beyond GDP Welfare Valuation
Climate Change and Sustainable Development
In this paper we develop the standard utility function of a Ramsey-type optimal growth model to account for a ‘market-time’ vs. ‘free-time’ trade-off. To do so, we introduce a free-time preference coefficient that measures the utility gained by deviating from a maximum labour supply defined as the combination of a 95% labour force participation rate for the 20 to 69 year-old population, and 3000 annual working hours (50 effective 60-hour weeks). We calibrate this free-time preference coefficient for 12 world regions on statistical and projected data from the United Nations, the International Labour Organisation and the OECD. We illustrate a prospective use of this modelling development by comparing the consequences of convergence of the free-time preference coefficients of all world regions to the contrasted Western European vs. United States value. Over the 21st century, compared to a business-as-usual trajectory defined by maintained regional disparities in free time preference, convergence to US free time preference induces a 0.3% decrease in global discounted labour market time, but a 4.2% increase in discounted global GDP sustained by a 2.5% increase in primary energy consumption that translates into a 1.7% increase in cumulated CO2-equivalent emissions; convergence to Western European free time preference decreases labour market time by 13.8%, GDP by 11.7%, primary energy consumption by 10.7% and cumulated CO2-equivalent emissions by 9.1%.