It is often suggested that a reduction in hours worked per person increases employment. In practice, the effects on employment of a cut in standard hours worked depend on subsequent changes in actual hours worked, on wage increases negotiated in order for workers to accept the cut in hours and on the changes in incentives to employers caused by the increased constraints on use of labour. In Discussion Paper No. 1526, Jennifer Hunt uses the German Socio-Economic Panel to analyse the effects of a decrease in standard working hours in Germany over the period 1984–9. She finds that, for hourly-paid manufacturing workers, actual hours fell by 0.85–1 hour in response to a one-hour cut in standard hours. Results for services and salaried workers are less clear-cut, but appear to be similar.

Turning to wages, Hunt examines the hypothesis that reductions in standard hours lead to wage restraint. She finds that workers in sectors achieving reductions in standard hours negotiated sufficient increases in the hourly wage to ensure that their monthly pay did not fall relative to other workers. Hunt concludes that these results are inconsistent with the hypothesis. While the large reduction in hours worked per worker increases the probability that employment rises owing to cuts in standard hours, the increase in the hourly wage reduces this probability.

The Response of Wages and Actual Hours Worked to the Reduction of Standard Hours in Germany
Jennifer Hunt