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Hours of Work: A Demand Perspective

  • Robert Dixon
  • John Freebairn

In Australia, and in other countries, we observe at any one time a wide distribution of hours worked per week. We develop a cost-minimising model to explain employer choices over the number of employees and their hours of work. An important finding is that hours of work and the number of employees are not perfect substitutes. We show that this has important implications for the way economists model labour demand and measure productivity. We show that estimates using total hours worked as the measure of labour input implicitly assumes perfect substitution of persons and hours and results, inter alia, in an overestimation of the rate of labour and multifactor productivity growth in Australia and especially in the period prior to the so called ‘productivity slow-down’.

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Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1022.

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Length: 33 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mlb:wpaper:1022
Contact details of provider: Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
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  1. Russell, Bill & Tease, Warren, 1991. "Employment, Output and Real Wages," The Economic Record, The Economic Society of Australia, vol. 67(196), pages 34-45, March.
  2. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 9.
  3. Kapteyn, A. & Kalwij, A. & Zaidi, A., 2000. "The Myth of Worksharing," Economics Series Working Papers 9932, University of Oxford, Department of Economics.
  4. Craine, Roger, 1973. "On the Service Flow from Labour," Review of Economic Studies, Wiley Blackwell, vol. 40(11), pages 39-46, January.
  5. repec:cup:cbooks:9780521577724 is not listed on IDEAS
  6. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
  7. repec:cup:cbooks:9780521571371 is not listed on IDEAS
  8. Dean Parham, 2004. "Sources of Australia's Productivity Revival," The Economic Record, The Economic Society of Australia, vol. 80(249), pages 239-257, 06.
  9. Ana Paula Martins, 2004. "The Employment-Hours Trade-off: Theory and an Application to the Portuguese Case," LABOUR, CEIS, vol. 18(3), pages 465-502, 09.
  10. Mark Wooden & Robert Drago, 2007. "The Changing Distribution of Working Hours in Australia," Melbourne Institute Working Paper Series wp2007n19, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  11. Calmfors, Lars & Hoel, Michael, 1989. "Work Sharing, Employment and Shiftwork," Oxford Economic Papers, Oxford University Press, vol. 41(4), pages 758-73, October.
  12. Calmfors, Lars & Hoel, Michael, 1988. " Work Sharing and Overtime," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(1), pages 45-62.
  13. Guy Debelle & James Vickery, 1998. "The Macroeconomics of Australian Unemployment," RBA Annual Conference Volume, in: Guy Debelle & Jeff Borland (ed.), Unemployment and the Australian Labour Market Reserve Bank of Australia.
  14. David M. Cutler & Brigitte C. Madrian, 1996. "Labor Market Responses to Rising Health Insurance Costs: Evidence on Hours Worked," NBER Working Papers 5525, National Bureau of Economic Research, Inc.
  15. Booth, Alison & Ravallion, Martin, 1993. "Employment and Length of the Working Week in a Unionized Economy in which Hours of Work Influence Productivity," The Economic Record, The Economic Society of Australia, vol. 69(207), pages 428-36, December.
  16. Bell, David N F, 1982. "Labour Utilization and Statutory Non-Wage Costs," Economica, London School of Economics and Political Science, vol. 49(195), pages 335-43, August.
  17. Robert Dixon & John Freebairn & G.C. Lim, 2005. "An Employment Equation for Australia," The Economic Record, The Economic Society of Australia, vol. 81(254), pages 204-214, 09.
  18. Lewis, Philip E T & MacDonald, Garry, 2002. "The Elasticity of Demand for Labour in Australia," The Economic Record, The Economic Society of Australia, vol. 78(240), pages 18-30, March.
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