Hours Constraints in Market Equilibrium
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.
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