The incentive for working hard: Explaining hours worked differences in theUS and Germany

This paper seeks to explain the greater hours worked by Americans compared to Germans in terms of forward-looking labor supply responses to difference s in earnings inequality between the countries. We argue that workers choos e current hours of work to gain promotions and advance in the distribution of earnings. Since US earnings are more unequally distributed than German e arnings, the same extra work pays off more in the US, generating more hours worked. Supporting this inequality-hours hypothesis, we show that in both countries hours worked is positively related to earnings inequality in cros s-section occupational contrasts and that hours worked raises future wages and promotion prospects in longitudinal data. (C) 2001 Published by Elsevie r Science B,V,