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Uniform working hours and structural unemployment

  • Haoming Liu
  • Yi Wen
  • Lijing Zhu

In this paper, we construct a simple model based on heterogeneity in workers' productivity and homogeneity in their working schedules. This simple model can generate unemployment, even if wages adjust instantaneously, firms are perfectly competitive, and firms can perfectly observe workers' productivity and effort. In our model, it is optimal for low-skilled workers to be unemployed because, on the one hand, firms do not find it optimal to hire low-skilled workers when labor hours must be synchronized across heterogeneous workers, and on the other hand, low-skilled workers do not find it attractive working for the same hours as high-skilled workers at competitive wages based on productivity. Thus our model offers an alternative explanation for why unskilled workers are a primary source of structural unemployment.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2005-045.

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Date of creation: 2005
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Handle: RePEc:fip:fedlwp:2005-045
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  1. Costa, Dora L, 1998. "The Unequal Work Day: A Long-Term View," American Economic Review, American Economic Association, vol. 88(2), pages 330-34, May.
  2. Nickell, Stephen & Bell, Brian, 1996. "Changes in the Distribution of Wages and Unemployment in OECD Countries," American Economic Review, American Economic Association, vol. 86(2), pages 302-08, May.
  3. Costa, Dora L, 2000. "The Wage and the Length of the Work Day: From the 1890s to 1991," Journal of Labor Economics, University of Chicago Press, vol. 18(1), pages 156-81, January.
  4. Cho, J-O. & Cooley, T.F., 1988. "Employment And Hours Over The Business Cycle," Papers 88-03, Rochester, Business - General.
  5. Audra Bowlus & Haoming Liu & Chris Robinson, 2002. "Business Cycle Models, Aggregation, and Real Wage Cyclicality," Journal of Labor Economics, University of Chicago Press, vol. 20(2), pages 308-335, Part.
  6. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  7. Lawrence F. Katz, 1986. "Efficiency Wage Theories: A Partial Evaluation," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 235-290 National Bureau of Economic Research, Inc.
  8. Kydland, Finn E., 1984. "Labor-force heterogeneity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 173-208, January.
  9. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  10. Yellen, Janet L, 1984. "Efficiency Wage Models of Unemployment," American Economic Review, American Economic Association, vol. 74(2), pages 200-205, May.
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