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Hours Constraints in Market Equilibrium


  • William R. Johnson



The observation that many workers report wanting to work more or fewer hours at their current rate of pay appears to contradict standard neoclassical theory. Although most jobs limit the ability of workers to choose hours, economists typically assume that workers can choose hours by choosing jobs. The puzzle is why workers have not chosen jobs which allow them to work the number of hours they prefer. This paper outlines two classes of reasons that hours constraints might be observed in a neoclassical market equilibrium – mismatch (caused by search costs or market thinness) or wedges between imagined and feasible hours-compensation combinations (caused by market power, implicit contracts, overtime premia and fixed costs of employment like fringe benefits.) Using proxies for each of these putative explanations and cross-section data on self-reported hours constraints I find support for explanations that rely on fixed cost fringe benefits, overtime premia, search costs and unions but no support for the monopsony power or market thinness explanations. Moreover, the data are consistent with two strong empirical implications of hours constraints being illusory in the sense that the jobs constrained workers would prefer are not economically feasible.

Suggested Citation

  • William R. Johnson, 2006. "Hours Constraints in Market Equilibrium," Virginia Economics Online Papers 367, University of Virginia, Department of Economics.
  • Handle: RePEc:vir:virpap:367

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    References listed on IDEAS

    1. Moretti, Enrico, 2004. "Estimating the social return to higher education: evidence from longitudinal and repeated cross-sectional data," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 175-212.
    2. Philip A. Trostel, 1996. "Should Education Be Subsidized?," Public Finance Review, , vol. 24(1), pages 3-24, January.
    3. Keane, Michael P & Wolpin, Kenneth I, 1997. "The Career Decisions of Young Men," Journal of Political Economy, University of Chicago Press, vol. 105(3), pages 473-522, June.
    4. Johnson, George E, 1984. "Subsidies for Higher Education," Journal of Labor Economics, University of Chicago Press, vol. 2(3), pages 303-318, July.
    5. James J. Heckman & Lance Lochner & Christopher Taber, 1999. "General Equilibrium Cost Benefit Analysis of Education and Tax Policies," NBER Working Papers 6881, National Bureau of Economic Research, Inc.
    6. Daron Acemoglu & Joshua Angrist, 1999. "How Large are the Social Returns to Education? Evidence from Compulsory Schooling Laws," NBER Working Papers 7444, National Bureau of Economic Research, Inc.
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    More about this item


    hours of work; constraint; desired hours;

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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