Working Paper: CEPR ID: DP2127
Authors: Ramon Marimon; Fabrizio Zilibotti
Abstract: We study the emplyment and distributional effects of regulating (reducing) working time in a general equilibrium model with search-matching frictions. Job creation entails some fixed costs, but existing jobs are subject to diminishing returns. We characterize the equilibrium in the de-regulated economy where large firms and individual workers freely negotiate wages and hours. Then, we consider the effects of a legislation restricting the maximum working time, while we let wages respond endogenously. In general, this regulation benefits workers, both unemployed and employed (even if wages decrease), but reduces profits and and output. Employment effects are sensitive to the representation of preferences. In our benchmark, small reductions in working time, starting from the laissez-faire equilibrium solution, always increase employment, while larger reductions reduce employment. However, the employment gains from reducing working time are relatively small
Keywords: hours reduction; leisure; search; unemployment; wage; working time; work sharing
JEL Codes: E24; E25; J22; J23; J30; J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reducing working time (J22) | Benefits for unemployed and employed workers (J68) |
| Legislation enhances workers' bargaining power (J58) | Redistribution of surplus from firms to workers (D33) |
| Reducing working time (J22) | Decrease in wages (J31) |
| Reducing working time (J22) | Reduced profits and output (E11) |
| Small reductions in working time (J22) | Increase in employment (J23) |
| Larger reductions in working time (J29) | Ambiguous employment effects (J63) |
| Employment gains from reducing working time (J29) | Modest (Y20) |
| Preference specifications (C25) | Negative employment effects (F66) |