The Leisure Gains from International Trade

IMF Working Papers, January 19, 2024

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The average number of hours worked has been declining in many countries and can be explained if workers have preferences with income effects outweighing substitution effects.
Reducing trade barriers leads to fewer hours worked while being compatible with an increase in welfare.
The author derives an hours-to-trade elasticity and estimates it using exogenous income variation generated by aggregate trade.
Quantitative result: the rise in trade openness between 1950 and 2014 explains 7 percent of the total decline in hours per worker in high-income countries.

Framework: multi-country Ricardian trade model linking trade and aggregate labor supply.
Analytical contribution: derivation of an hours-to-trade elasticity (uncompensated/Mashallian elasticity framing is referenced in keywords).
Empirical strategy: estimation exploits exogenous income variation generated by aggregate trade to identify the causal effect of trade on hours worked.

Mechanism: when income effects dominate substitution effects, rising income induces workers to reduce labor supply to enjoy more leisure; international trade increases incomes through lower trade barriers, thus generating leisure gains.
Welfare: reductions in hours worked driven by trade openness can coincide with higher welfare rather than indicating a welfare loss.
Magnitude: trade openness is a quantitatively small but non-negligible contributor to long-run declines in hours per worker in high-income countries (7 percent of the decline over 1950–2014).

Consumption, Employment rate, Income, Labor, Labor supply, National accounts, Real wages
Consumption, Employment rate, Global, Hours worked, hours-to-trade elasticity, Income, international trade, labor supply, leisure, Marshallian elasticity, Real wages, Ricardian trade model, trade openness, trade share, uncompensated elasticity

Agustin Velasquez, "The Leisure Gains from International Trade", IMF Working Papers 2024, 016 (2024).