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Work-Sharing: an Efficiency-Wage Analysis

Author

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  • Thomas Moutos
  • William Scarth

Abstract

This paper evaluates two approaches to work-sharing by examining both within the same macro model. The standard approach involves imposing a quantity constraint on labour market participants (a maximum number of standard hours for each worker). This approach is compared to a revenue-neutral employment subsidy financed by a tax on overtime hours ? an initiative intended to harness market incentives. The paper shows that the second approach brings much preferred results ? it involves lower unemployment, higher investment, and no reduction in the wage earnings of those already employed. The analysis suggests that policymakers should not reject work-sharing just because they are (justifiably) skeptical of mandated reductions in hours. The model involves the following features: (i) it is optimization-based (so there is a well-defined reason for labour market failure); (ii) it facilitates the investigation of trade-offs (so it can be determined whether improvements in unemployment must be accompanied by reductions in productivity, investment, average hours or wage rates); (iii) it involves a small open economy (so concerns about the limits to independent policy in this setting are respected); and (iv) it can be readily calibrated (so empirically relevant quantitative results are derived).

Suggested Citation

  • Thomas Moutos & William Scarth, 2000. "Work-Sharing: an Efficiency-Wage Analysis," CESifo Working Paper Series 386, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_386
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    File URL: http://www.cesifo-group.de/DocDL/cesifo_wp386.pdf
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    References listed on IDEAS

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    1. Jennifer Hunt, 1999. "Has Work-Sharing Worked in Germany?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 117-148.
    2. 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 914-928, November.
    3. F. P. R. Brechling, 1965. "The Relationship between Output and Employment in British Manufacturing Industries," Review of Economic Studies, Oxford University Press, vol. 32(3), pages 187-216.
    4. Summers, Lawrence H, 1988. "Relative Wages, Efficiency Wages, and Keynesian Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 383-388, May.
    5. Bauer, Thomas & Zimmermann, Klaus F, 1999. "Overtime Work and Overtime Compensation in Germany," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(4), pages 419-436, September.
    6. Clemens Fuest & Bernd Huber, 1998. "Why Do Countries Subsidize Investment and Not Employment?," NBER Working Papers 6685, National Bureau of Economic Research, Inc.
    7. 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 473-486, November.
    8. 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.
    9. Calmfors, Lars & Hoel, Michael, 1989. "Work Sharing, Employment and Shiftwork," Oxford Economic Papers, Oxford University Press, vol. 41(4), pages 758-773, October.
    10. 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.
    11. A. B. Atkinson, 1999. "The Economic Consequences of Rolling Back the Welfare State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011719, January.
    12. Marimon, Ramon & Zilibotti, Fabrizio, 2000. "Employment and distributional effects of restricting working time," European Economic Review, Elsevier, vol. 44(7), pages 1291-1326, June.
    13. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    14. Calmfors, Lars & Hoel, Michael, 1988. " Work Sharing and Overtime," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(1), pages 45-62.
    15. 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 237-248, May.
    16. Calmfors, Lars, 1985. "Work sharing, employment and wages," European Economic Review, Elsevier, vol. 27(3), pages 293-309.
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    Cited by:

    1. Malick Souare, 2003. "Macroeconomic Implications of Population Aging and Public Pensions," Social and Economic Dimensions of an Aging Population Research Papers 100, McMaster University.

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