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Implementing the 35 Hour Workweek by Means of Overtime Taxation


  • Victoria Osuna

    (Universidad Pablo de Olavide)

  • Jose-Victor Rios-Rull

    (University of Pennsylvania)


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)

Suggested Citation

  • Victoria Osuna & Jose-Victor Rios-Rull, 2003. "Implementing the 35 Hour Workweek by Means of Overtime Taxation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 179-206, January.
  • Handle: RePEc:red:issued:v:6:y:2003:i:1:p:179-206
    DOI: 10.1016/S1094-2025(02)00014-5

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    References listed on IDEAS

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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. 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.
    3. Edward C. Prescott, 2003. "Non-convexities in quantitative general equilibrium studies of business cycles," Staff Report 312, Federal Reserve Bank of Minneapolis.
    4. Hansen, G.D. & Ohanian, L.E., 2016. "Neoclassical Models in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    5. Erosa, Andrés & Fuster, Luisa & Kambourov, Gueorgui, 2012. "Labor supply and government programs: A cross-country analysis," Journal of Monetary Economics, Elsevier, vol. 59(1), pages 84-107.
    6. Prescott, Edward C. & Shell, Karl, 2002. "Introduction to Sunspots and Lotteries," Journal of Economic Theory, Elsevier, vol. 107(1), pages 1-10, November.
    7. 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 (IfW), vol. 8, pages 1-29.
    8. Willington, Manuel & Navarro, Lucas, 2015. "Work hours regulation in a search economy with adverse selection," Economics Letters, Elsevier, vol. 136(C), pages 46-48.
    9. Lonnie Golden & Stuart Glosser, 2013. "Work sharing as a potential policy tool for creating more and better employment: A review of the evidence," Chapters,in: Work Sharing during the Great Recession, chapter 7, pages 203-258 Edward Elgar Publishing.
    10. Ohanian, Lee E., 2009. "What - or who - started the great depression?," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2310-2335, November.
    11. Andrés Erosa & Luisa Fuster & Gueorgui Kambourov, 2016. "Towards a Micro-Founded Theory of Aggregate Labour Supply," Review of Economic Studies, Oxford University Press, vol. 83(3), pages 1001-1039.
    12. 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.
    13. Alexander Ueberfeldt, 2006. "Working Time over the 20th Century," Staff Working Papers 06-18, Bank of Canada.
    14. Fabrice Gilles, 2014. "Evaluating the impact of a working time regulation on capital operating time. The French 35-hour work week experience," Working Papers hal-01006765, HAL.
    15. 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.
    16. 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.
    17. Victoria Osuna, 2009. "Should we tax overtime, subsidize the wage or subsidize employment?," Working Papers 09.03, Universidad Pablo de Olavide, Department of Economics.
    18. Osuna Victoria, 2009. "Taxing Overtime or Subsidizing Employment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-28, October.

    More about this item


    Workweek; Overtime; 35 hour workweek; Labor policy;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy


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