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Not Employed 37 Hours or Employed 41? A CGE Analysis for Germany

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  • Conrad, Klaus
  • Koschel, Henrike
  • Löschel, Andreas

Abstract

The objective of our analysis is to find out whether an increase in working time without pay compensation can be considered an adequate policy to reduce unemployment. From the perspective of economic theory the outcome is in general ambiguous: On the one hand, as the increase in working time raises labour productivity per employee, conditional demand for labour will increase (substitution effect) and conditional demand for intermediate inputs will decline. Since, on the other hand, workers do have a longer working time anyway, no positive effect on the number of persons employed can be expected. However, output of the manufacturing industry, and thus unconditional demand for labour, capital and intermediate goods, will increase (output effect). In order to sell the additional output, firms have to lower prices. Depending on the price elasticities, revenues and hence profits will change. We quantify the employment effects of an economy-wide increase in weekly normal hours in Germany on the basis of a CGE model using an input-output framework for all sectors of the economy. Our simulation results support the argument of the opponents of longer working time that not more jobs will be created. However, when we recycled the higher tax revenues from GDP growth to lower the contribution to social security, then we have been able to support the claim of the proponents that more jobs will be created. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 05-42.

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Date of creation: 2005
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Handle: RePEc:zbw:zewdip:3285

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Related research

Keywords: unemployment; labour market rigidities; longer working hours; computable general equilibrium modelling;

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  1. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier.
  2. Steiner, Viktor & Peters, Ralf-Henning, 2000. "Employment effects of work sharing: an econometric analysis for West Germany," ZEW Discussion Papers 00-20, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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