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Reduction of Working Time: Does it Decrease Unemployment?

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Author Info
Axel Börsch-Supan () (Mannheim Research Institute for the Economics of Aging (MEA))
Abstract

Over and again, the reduction of working time is praised as the instrument against unemployment in Europe. While the first round argument appears obvious – less work for some will create more work for others – second round repercussions, such as consequential labor cost increases, put doubt on the validity of the argument. As frequently, empirical evidence would be helpful to shed light on this important debate. This paper reviews the theoretical arguments and the empirical evidence on the effects of reduced weekly working time on unemployment. Given the prominence in the European popular discussion, the scientific literature is astoundingly thin on the topic. The main findings can be summarized as follows: There are theoretical arguments that can form the basis for a positive effect on employment in response to a reduction in working time. However, they rest on strong assumptions that appear counterfactual. Econometric studies show little or negative effects on employment in Germany. Only a set of simulation studies predicts a positive employment effect – but again, they appear to rest on counterfactual assumptions. Hence, while the reduction of work hours may have increased workers’ utility – a legitimate goal of the unions – it does not appear to be justified as a cure against unemployment.

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Paper provided by Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim in its series MEA discussion paper series with number 02003.

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Date of creation: 14 Jan 2002
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Handle: RePEc:mea:meawpa:02003

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Postal: MEA - Mannheimer Forschungsinstitut Ökonomie und Demographischer Wandel, L13, 17, University of Mannheim, 68131 Mannheim
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  1. Toedter, Karl-Heinz, 1988. "Effects of shorter hours on employment in disequilibrium models," European Economic Review, Elsevier, vol. 32(6), pages 1319-1333, July. [Downloadable!] (restricted)
  2. Konig, Heinz & Pohlmeier, Winfried, 1988. "Employment, Labour Utilization and Procyclical Labour Productivity," Kyklos, Blackwell Publishing, vol. 41(4), pages 551-72.
  3. Entorf, Horst & Konig, Heinz & Pohlmeier, Winfried, 1992. " Labor Utilization and Nonwage Labor Costs in a Disequilibrium Macro Framework," Scandinavian Journal of Economics, Blackwell Publishing, vol. 94(1), pages 71-83.
  4. Kashyap, Anil K, 1995. "Sticky Prices: New Evidence from Retail Catalogs," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 245-74, February. [Downloadable!] (restricted)
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  5. Jennifer Hunt, 1998. "Hours Reductions as Work-Sharing," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1998-1), pages 339-381. [Downloadable!]
  6. 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. [Downloadable!] (restricted)
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  7. Jennifer Hunt, 1999. "Has Work-Sharing Worked In Germany?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 117-148, February. [Downloadable!] (restricted)
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  8. Alan S. Blinder, 1994. "On Sticky Prices: Academic Theories Meet the Real World," NBER Chapters, in: Monetary Policy, pages 117-154 National Bureau of Economic Research, Inc. [Downloadable!]
  9. Börsch-Supan, Axel & Schnabel, Reinhold, 1997. "Social security and retirement in germany," Sonderforschungsbereich 504 Publications 97-20, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
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