Reduction of working hours as a policy of work sharing in the face of an economic crisis

Abstract

In times of economic crisis, with a high unemployment rate expected to continue rising, governments such as those of the European countries which establish the number of hours to be worked can share out work by reducing the length of the working week. This article constructs a general equilibrium model in which the effects of reduction in working hours on the main macroeconomic variables are studied. To do so, the model includes two important new features with regard to the production function: a parameter measuring the productivity of working hours and another parameter of adjustment costs measuring the unproductive time in the course of the working day. Results show that the employment level always improves as the length of the working week is reduced but also reveal an inflection point in terms of the productivity of working hours, below which a reduction in the number of working hours improves the results of macroeconomic variables and above which this policy aggravates the economic situation.

Acknowledgement

This work is supported in part by the Ministry of Science and Innovation, Spain, under the project ECO2009-10398.

Notes

¹Marimon and Zilibotti (2000).