Reduction of Working Time: Does it Decrease Unemployment?

Over and again, the reduction of working time is praised as the instrument against unemployment in Europe. While the first round argument appears obvious – less work for some will create more work for others – second round repercussions, such as consequential labor cost increases, put doubt on the validity of the argument. As frequently, empirical evidence would be helpful to shed light on this important debate. This paper reviews the theoretical arguments and the empirical evidence on the effects of reduced weekly working time on unemployment. Given the prominence in the European popular discussion, the scientific literature is astoundingly thin on the topic. The main findings can be summarized as follows: There are theoretical arguments that can form the basis for a positive effect on employment in response to a reduction in working time. However, they rest on strong assumptions that appear counterfactual. Econometric studies show little or negative effects on employment in Germany. Only a set of simulation studies predicts a positive employment effect – but again, they appear to rest on counterfactual assumptions. Hence, while the reduction of work hours may have increased workers’ utility – a legitimate goal of the unions – it does not appear to be justified as a cure against unemployment.