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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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File URL: http://dx.doi.org/10.1016/S1094-2025(02)00014-5
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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. Terry J. Fitzgerald, 1996. "Reducing working hours," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 13-22.
  2. Cho, Jang-Ok & Cooley, Thomas F., 1994. "Employment and hours over the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 18(2), pages 411-432, March.
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  8. Harald Uhlig, 1996. "A law of large numbers for large economies (*)," Economic Theory, Springer, vol. 8(1), pages 41-50.
  9. Terry J. Fitzgerald, 1998. "Work Schedules, Wages and Employment in a General Equilibrium Model with Team Production," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 809-834, October.
  10. Jennifer Hunt, 1999. "Has Work-Sharing Worked In Germany?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 117-148, February.
  11. Terry J. Fitzgerald, 1998. "Reducing working hours: a general equilibrium analysis," Working Paper 9801, Federal Reserve Bank of Cleveland.
  12. Kydland, Finn E & Prescott, Edward C, 1991. "Hours and Employment Variation in Business Cycle Theory," Economic Theory, Springer, vol. 1(1), pages 63-81, January.
  13. Eric French, 2005. "The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 395-427.
  14. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  15. Mark Bils & Jang-Ok Cho, 1993. "Cyclical factor utilization," Discussion Paper / Institute for Empirical Macroeconomics 79, Federal Reserve Bank of Minneapolis.
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  17. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
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  19. Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January.
  20. Jennifer Hunt, 1996. "The Response of Wages and Actual Hours Worked to the Reduction of Standard Hours in Germany," Discussion Papers of DIW Berlin 138, DIW Berlin, German Institute for Economic Research.
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Citations

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Cited by:
  1. Céspedes, Nikita & Kuklik, Michael, 2013. "Optimal Taxation and Life Cycle Labor Supply Profile," Working Papers 2013-020, Banco Central de Reserva del Perú.
  2. Edward C. Prescott, 2003. "Non-convexities in quantitative general equilibrium studies of business cycles," Staff Report 312, Federal Reserve Bank of Minneapolis.
  3. Prescott, Edward C. & Shell, Karl, 2002. "Introduction to Sunspots and Lotteries," Journal of Economic Theory, Elsevier, vol. 107(1), pages 1-10, November.
  4. 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, vol. 12(1), pages 23-36, January.
  5. 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, vol. 8(7), pages 1-29.
  6. Andrés Erosa & Luisa Fuster & Gueorgui Kambourov, 2011. "Towards a micro-founded theory of aggregate labor supply," Working Papers 2011-13, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales, revised 23 Nov 2011.
  7. Victoria Osuna, 2009. "Should we tax overtime, subsidize the wage or subsidize employment?," Working Papers 09.03, Universidad Pablo de Olavide, Department of Economics.
  8. Antonio García Sánchez & María del Mar Vázquez Méndez, 2005. "The timing of work in a general equilibrium model with shiftwork," Investigaciones Economicas, Fundación SEPI, vol. 29(1), pages 149-179, January.
  9. Andres Erosa & Luisa Fuster & Gueorgui Kambourov, 2011. "Labor Supply and Government Programs: A Cross-Country Analysis," Working Papers tecipa-442, University of Toronto, Department of Economics.
  10. Antonio Morales & Pablo Brañas Garza, 2003. "Computational Errors in Guessing Games1," Economic Working Papers at Centro de Estudios Andaluces E2003/11, Centro de Estudios Andaluces.
  11. Osuna, Victoria, 2013. "Working-week flexibility: Implications for employment and productivity," Economics Discussion Papers 2013-27, Kiel Institute for the World Economy.
  12. Díaz, Antonia & Echevarria, Cristina, 2009. "Why a fixed workweek?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(5), pages 790-798, October.
  13. Alexander Ueberfeldt, 2006. "Working Time over the 20th Century," Working Papers 06-18, Bank of Canada.

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