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Title: Employment and Distributional Effects of Restricting Working Time

Author(s): Ramon Marimon and Fabrizio Zilibotti

Publication Date: April 1999

Keyword(s): Hours Reduction, Leisure, Search, Unemployment, Wage, Work Sharing and Working Time

Programme Area(s): Labour Economics

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

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Bibliographic Reference

Marimon, R and Zilibotti, F. 1999. 'Employment and Distributional Effects of Restricting Working Time'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2127