Greater Wage Inequality Reduces Average Hours of Work

I argue that rising inequality in offered wages lowers average working hours. If labour supply is concave in wages, a decrease in the working hours of low-paid workers is greater than an increase in working hours of high-paid workers. Furthermore, due to low market opportunities, some low-paid workers may leave the labour force. Using CPS-MORG data for prime-age men, I find evidence in support of this explanation. I establish empirically the concavity of the labour supply and find evidence that after controlling for the average wage, wage inequality has a negative effect on labour supply.