A curse on leisure? Resource rents and labor supply

Abstract

An extensive literature establishes the resource curse, the paradoxical tendency of societies with more natural resources to have worse economic outcomes. Our formal model extends the resource curse literature in several ways. First, there may exist a general tendency for resources to crowd out private production while still increasing consumption and welfare. We establish this relation without assuming increasing returns to scale in the productive private sector, as is common in the literature. We also propose a novel resource curse to leisure time. Just as resources ‘should’ increase income—their failure to do so establishing the traditional curse—they should also allow more leisure. Recent cross-country data suggest the opposite is true. We offer initial steps toward explaining the discrepancy: resources can turn from blessing to curse on both leisure and income under flawed institutions, particularly when policymakers favor employment over leisure. Direct (re)distribution of resource wealth rather than expanded government employment presents a policy solution.