Idle worship

This paper shows that where there is habit formation m consumption and labour effort, output levels can be driven above or below those levels a social planner would choose depending on the relative size of these two habit effects. In the steady state of an economy where consumption habit persistence dominates, people work excessive hours compared with the social optimum. Some simple empirical evidence suggests that excessive output inefficiencies exist in both the US and the Euro-zone. (c) 2005 Elsevier B.V. All rights reserved.