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Work-Sharing: an Efficiency-Wage Analysis

Author

Listed:
  • Thomas Moutos
  • William Scarth

Abstract

This paper evaluates two approaches to work-sharing by examining both within the same macro model. The standard approach involves imposing a quantity constraint on labour market participants (a maximum number of standard hours for each worker). This approach is compared to a revenue-neutral employment subsidy financed by a tax on overtime hours ? an initiative intended to harness market incentives. The paper shows that the second approach brings much preferred results ? it involves lower unemployment, higher investment, and no reduction in the wage earnings of those already employed. The analysis suggests that policymakers should not reject work-sharing just because they are (justifiably) skeptical of mandated reductions in hours. The model involves the following features: (i) it is optimization-based (so there is a well-defined reason for labour market failure); (ii) it facilitates the investigation of trade-offs (so it can be determined whether improvements in unemployment must be accompanied by reductions in productivity, investment, average hours or wage rates); (iii) it involves a small open economy (so concerns about the limits to independent policy in this setting are respected); and (iv) it can be readily calibrated (so empirically relevant quantitative results are derived).

Suggested Citation

  • Thomas Moutos & William Scarth, 2000. "Work-Sharing: an Efficiency-Wage Analysis," CESifo Working Paper Series 386, CESifo.
    • Handle: RePEc:ces:ceswps:_386
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    File URL: https://www.cesifo.org/DocDL/cesifo_wp386.pdf
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    References listed on IDEAS

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    Cited by:

    1. Malick Souare, 2003. "Macroeconomic Implications of Population Aging and Public Pensions," Social and Economic Dimensions of an Aging Population Research Papers 100, McMaster University.

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