Work hours, social value of leisure and globalisation

We examine how openness interacts with the coordination of consumption–leisure decisions in determining the equilibrium working hours and wage rate when there are leisure externalities (e.g., due to social interactions). The latter are modelled by allowing a worker's marginal utility of leisure to be increasing in the leisure time taken by other workers. Coordination takes the form of internalising the leisure externality and other relevant constraints (e.g., labour demand). The extent of openness is measured by the degree of capital mobility. We find that: coordination lowers equilibrium work hours and raises the wage rate; there is a U-shaped (inverse-U-shaped) relationship between work hours (wages) and the degree of coordination; coordination is welfare improving; and, the gap between the coordinated and uncoordinated work hours (and the corresponding wage rates) is affected by the extent and nature of openness.

► We find that coordination of consumption–leisure decisions lowers equilibrium work hours and raises the wage rate.
► There emerges a U-shaped relationship between work hours and coordination in form of internalising the leisure externality.
► The gap between the coordinated and uncoordinated work hours is affected by the extent and nature of openness.
► For countries that are net importers of capital raising the degree of openness increases both the labour supply and the wage rate.
► Coordination is welfare improving and stronger leisure externalities enhance this improvement.