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Constraints on the Choice of Work Hours: Agency vs. Specific-Capital

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  • Shulamit Kahn
  • Kevin Lang

Abstract

Most models of implicit lifetime contracts imply that at any particular point in time, workers' wages and value of marginal product (VMP) will diverge. As a result, the contract will have to specify hours as well as wages, since firms will desire to prevent workers from working more when the wage is greater than VMP and from working less when the wage is less than VMP. this divergence, combined with the fact that in efficient contracts, the hours are set so that VMP equals the marginal value of leisure, implies that workers will face binding hours constraints. We show that the two major models of lifetime contracts, the agency model and the firm-specific capital model, make opposite predictions regarding the relation between work hours constraints and job tenure. We test these predictions. Our results indicate that neither model of efficient long-term contracts explains the observed pattern of hours constraints. Therefore, we briefly consider other explanations.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2238.

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Date of creation: May 1987
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Publication status: Published as "Constraints on the Choice of Work Hours: Agency Versus Specific-Capital", JHR, Vol. 27, no. 4 (1992): 661-678.
Handle: RePEc:nbr:nberwo:2238

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  1. Dickens, William T & Lang, Kevin, 1985. "A Test of Dual Labor Market Theory," American Economic Review, American Economic Association, vol. 75(4), pages 792-805, September.
  2. Moffitt, Robert, 1984. "The Estimation of a Joint Wage-Hours Labor Supply Model," Journal of Labor Economics, University of Chicago Press, vol. 2(4), pages 550-66, October.
  3. Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 37-50, January.
  4. Kuhn, Peter, 1986. "Wages, Effort, and Incentive Compatibility in Life-Cycle Employment Contracts," Journal of Labor Economics, University of Chicago Press, vol. 4(1), pages 28-49, January.
  5. Poirier, Dale J. & Ruud, Paul A., 1981. "On the appropriateness of endogenous switching," Journal of Econometrics, Elsevier, vol. 16(2), pages 249-256, June.
  6. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-20, September.
  7. Dickens, William T & Lundberg, Shelly J, 1993. "Hours Restrictions and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 169-92, February.
  8. Robert E. Hall, 1984. "The Importance of Lifetime Jobs in the U.S. Economy," NBER Working Papers 0560, National Bureau of Economic Research, Inc.
  9. Kahn, Shulamit, 1987. "Occupational Safety and Workers Preferences: Is There a Marginal Worker?," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 262-68, May.
  10. Polinsky, Mitchell & Shavell, Steven, 1979. "The Optimal Tradeoff between the Probability and Magnitude of Fines," American Economic Review, American Economic Association, vol. 69(5), pages 880-91, December.
  11. Lang, Kevin, 1989. "Why was there mandatory retirement?," Journal of Public Economics, Elsevier, vol. 39(1), pages 127-136, June.
  12. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
  13. Parsons, Donald O, 1972. "Specific Human Capital: An Application to Quit Rates and Layoff Rates," Journal of Political Economy, University of Chicago Press, vol. 80(6), pages 1120-43, Nov.-Dec..
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Cited by:
  1. Rebitzer, James B & Taylor, Lowell J, 1995. "Do Labor Markets Provide Enough Short-Hour Jobs? An Analysis of Work Hours and Work Incentives," Economic Inquiry, Western Economic Association International, vol. 33(2), pages 257-73, April.
  2. Kessing, Sebastian G. & Konrad, Kai A., 2005. "Union Strategy and Optimal Income Taxation," IZA Discussion Papers 1545, Institute for the Study of Labor (IZA).
  3. Joseph G. Altonji & Christina H. Paxson, 1992. "Labor Supply, Hours Constraints, and Job Mobility," Journal of Human Resources, University of Wisconsin Press, vol. 27(2), pages 256-278.
  4. Drolet, Marie & Morissette, Rene, 1997. "Working More? Working Less? What Do Canadian Workers Prefer?," Analytical Studies Branch Research Paper Series 1997104e, Statistics Canada, Analytical Studies Branch.
  5. Yi-Ping Tseng & Mark Wooden, 2005. "Preferred vs Actual Working Hours in Couple Households," Melbourne Institute Working Paper Series wp2005n07, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  6. Paxson, Christina H & Sicherman, Nachum, 1996. "The Dynamics of Dual Job Holding and Job Mobility," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 357-93, July.
  7. David Bell & Steffen Otterbach & Alfonso Sousa-Poza, 2011. "Work Hours Constraints and Health," SOEPpapers on Multidisciplinary Panel Data Research 424, DIW Berlin, The German Socio-Economic Panel (SOEP).
  8. Steven Stern & Petra Todd, 2000. "A Test Of Lazear’S Mandatory Retirement Model," Virginia Economics Online Papers 391, University of Virginia, Department of Economics.
  9. Joseph G. Altonji & Emiko Usui, 2007. "Work Hours, Wages, and Vacation Leave," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 60(3), pages 408-437, April.
  10. Drolet, Marie & Morissette, Rene, 1997. "Travailler plus? Travailler moins? Que preferent les travailleurs canadiens?," Direction des etudes analytiques : documents de recherche 1997104f, Statistics Canada, Direction des etudes analytiques.

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