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Employment and Distributional Effects of Restricting Working Time

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  • Marimon, Ramon
  • Zilibotti, Fabrizio

Abstract

We study the emplyment and distributional effects of regulating (reducing) working time in a general equilibrium model with search-matching frictions. Job creation entails some fixed costs, but existing jobs are subject to diminishing returns. We characterize the equilibrium in the de-regulated economy where large firms and individual workers freely negotiate wages and hours. Then, we consider the effects of a legislation restricting the maximum working time, while we let wages respond endogenously. In general, this regulation benefits workers, both unemployed and employed (even if wages decrease), but reduces profits and and output. Employment effects are sensitive to the representation of preferences. In our benchmark, small reductions in working time, starting from the laissez-faire equilibrium solution, always increase employment, while larger reductions reduce employment. However, the employment gains from reducing working time are relatively small

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2127.

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Date of creation: Apr 1999
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Handle: RePEc:cpr:ceprdp:2127

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Related research

Keywords: Hours Reduction; Leisure; Search; Unemployment; Wage; Work Sharing; Working Time;

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References

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  1. Hunt, Jennifer, 1996. "The Response of Wages and Actual Hours Worked to the Reduction of Standard Hours in Germany," CEPR Discussion Papers 1526, C.E.P.R. Discussion Papers.
  2. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Employment and Distributional Effects of Restricting Working Time," CEPR Discussion Papers 2127, C.E.P.R. Discussion Papers.
  3. Calmfors, Lars & Hoel, Michael, 1989. "Work Sharing, Employment and Shiftwork," Oxford Economic Papers, Oxford University Press, vol. 41(4), pages 758-73, October.
  4. Rocheteau, Guillaume, 2002. "Working time regulation in a search economy with worker moral hazard," Journal of Public Economics, Elsevier, vol. 84(3), pages 387-425, June.
  5. Calmfors, Lars & Hoel, Michael, 1988. " Work Sharing and Overtime," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(1), pages 45-62.
  6. Gilles Saint Paul, 1998. "The political consequences of unemployment," Economics Working Papers 343, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Hoel, Michael & Vale, Bent, 1986. "Effects on unemployment of reduced working time in an economy where firms set wages," European Economic Review, Elsevier, vol. 30(5), pages 1097-1104, October.
  8. Stewart, M.B. & Swaffield, J.K., 1996. "Constraints on the Desired Hours of Work of British Men," The Warwick Economics Research Paper Series (TWERPS) 468, University of Warwick, Department of Economics.
  9. Hunt, Jennifer, 1997. "Has Work Sharing Worked in Germany?," CEPR Discussion Papers 1553, C.E.P.R. Discussion Papers.
  10. Wadhwani, Sushil B, 1987. "The Effects of Inflation and Real Wages on Employment," Economica, London School of Economics and Political Science, vol. 54(213), pages 21-40, February.
  11. Correia, Maria Isabel Horta & Neves, Joao C & Rebelo, Sérgio, 1994. "Business Cycles in a Small Open Economy," CEPR Discussion Papers 996, C.E.P.R. Discussion Papers.
  12. Shulamit B. Kahn & Kevin Lang, 1995. "The Causes of Hours Constraints: Evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4a), pages 914-28, November.
  13. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  14. Brunello, Giorgio, 1989. "The Employment Effects of Shorter Working Hours: An Application to Japanese Data," Economica, London School of Economics and Political Science, vol. 56(224), pages 473-86, November.
  15. Calmfors, Lars, 1985. "Work sharing, employment and wages," European Economic Review, Elsevier, vol. 27(3), pages 293-309.
  16. Linda Bell & Richard Freeman, 1994. "Why Do Americans and Germans Work Different Hours?," NBER Working Papers 4808, National Bureau of Economic Research, Inc.
  17. Hoel, Michael, 1986. "Employment and Allocation Effects of Reducing the Length of the Workday," Economica, London School of Economics and Political Science, vol. 53(29), pages 75-85, February.
  18. Boaz Moselle, 1996. "Efficiency Wages and the Hours/Unemployment Trade-Off," Discussion Papers 1153, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  19. Booth, Alison & Schiantarelli, Fabio, 1987. "The Employment Effects of a Shorter Working Week," Economica, London School of Economics and Political Science, vol. 54(214), pages 237-48, May.
  20. Terry J. Fitzgerald, 1998. "Reducing working hours: a general equilibrium analysis," Working Paper 9801, Federal Reserve Bank of Cleveland.
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