Welfare Policy and the Sectoral Distribution of Employment

We examine the distribution of hours of work across 2-digit industrial sectors in OECD countries. We find large disparities when sectors are divided into three types: health and social work, a group that produces goods with home substitutes and all others. We attribute the disparities to the different tax and subsidy policies that countries follow, in a nested CES preference structure with home production. High taxation substantially reduces hours in sectors that have close home substitutes but less so in other sectors. Health and social care subsidies increase hours in that sector. We quantify these effects for nineteen OECD countries.