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Implementing the 35 Hour Workweek by Means of Overtime Taxation

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  • Victoria Osuna

    (Universidad Pablo de Olavide)

  • Jose-Victor Rios-Rull

    (University of Pennsylvania)

Abstract

This paper studies the implications of taxing overtime work to reduce the workweek. We study the roles played by team work, commuting costs and idiosyncratic output risk in determining the choice of the workweek. To obtain reliable estimates, we calibrate the model to the substitutability between overtime and employment using business cycle information. We find that a tax-rate of 12% of overtime wages reduces the workweek from 40 to 35 hours. This tax change increases employment by 7% and reduces output and productivity by 10.2% and 4.2%, respectively. Moreover, the welfare costs of this policy seem to be very large. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 6 (2003)
Issue (Month): 1 (January)
Pages: 179-206

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Handle: RePEc:red:issued:v:6:y:2003:i:1:p:179-206

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Related research

Keywords: Workweek; Overtime; 35 hour workweek; Labor policy;

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References

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  1. Card, David, 1990. "Labor supply with a minimum hours threshold," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 33(1), pages 137-168, January.
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  11. Brunello, Giorgio, 1989. "The Employment Effects of Shorter Working Hours: An Application to Japanese Data," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 56(224), pages 473-86, November.
  12. Harald Uhlig, 2010. "A Law of Large Numbers for Large Economies," Levine's Working Paper Archive 2070, David K. Levine.
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  19. Terry J. Fitzgerald, 1998. "Reducing working hours: a general equilibrium analysis," Working Paper, Federal Reserve Bank of Cleveland 9801, Federal Reserve Bank of Cleveland.
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Cited by:
  1. Michael Kuklik & Nikita Cespedes, 2013. "Optimal Taxation and Life Cycle Labor Supply Profile," Documentos de Trabajo, Departamento de Economía - Pontificia Universidad Católica del Perú 2013-352, Departamento de Economía - Pontificia Universidad Católica del Perú.
  2. Edward C. Prescott & Richard Rogerson & Johanna Wallenius, 2009. "Lifetime Aggregate Labor Supply with Endogenous Workweek Length," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 23-36, January.
  3. Alexander Ueberfeldt, 2006. "Working Time over the 20th Century," Working Papers, Bank of Canada 06-18, Bank of Canada.
  4. Antonio Morales & Pablo Brañas Garza, 2003. "Computational Errors in Guessing Games1," Economic Working Papers at Centro de Estudios Andaluces, Centro de Estudios Andaluces E2003/11, Centro de Estudios Andaluces.
  5. Victoria Osuna, 2009. "Should we tax overtime, subsidize the wage or subsidize employment?," Working Papers, Universidad Pablo de Olavide, Department of Economics 09.03, Universidad Pablo de Olavide, Department of Economics.
  6. Osune, Victoria, 2014. "Working-week flexibility: Implications for employment and productivity," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, Kiel Institute for the World Economy, vol. 8(7), pages 1-29.
  7. Andres Erosa & Luisa Fuster & Gueorgui Kambourov, 2014. "Towards a Micro-Founded Theory of Aggregate Labor Supply," Working Papers, University of Toronto, Department of Economics tecipa-516, University of Toronto, Department of Economics.
  8. Edward C. Prescott, 2003. "Non-Convexities in Quantitative General Equilibrium Studies of Business Cycles," Levine's Working Paper Archive 506439000000000372, David K. Levine.
  9. Andres Erosa & Luisa Fuster & Gueorgui Kambourov, 2011. "Labor Supply and Government Programs: A Cross-Country Analysis," Working Papers, University of Toronto, Department of Economics tecipa-442, University of Toronto, Department of Economics.
  10. Fabrice Gilles, 2014. "Evaluating the impact of a working time regulation on capital operating time. The French 35-hour work week experience," Working Papers, HAL hal-01006765, HAL.
  11. Díaz, Antonia & Echevarria, Cristina, 2009. "Why a fixed workweek?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 38(5), pages 790-798, October.
  12. Antonio García Sánchez & María del Mar Vázquez Méndez, 2005. "The timing of work in a general equilibrium model with shiftwork," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 29(1), pages 149-179, January.
  13. Prescott, Edward & Shell, Karl, 2002. "Introduction to Sunspots and Lotteries," Working Papers, Cornell University, Center for Analytic Economics 02-08, Cornell University, Center for Analytic Economics.
  14. Osuna, Victoria, 2013. "Working-week flexibility: Implications for employment and productivity," Economics Discussion Papers, Kiel Institute for the World Economy 2013-27, Kiel Institute for the World Economy.

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