Can a Shorter Workweek Induce Higher Employment? Mandatory Reductions in the Workweek and Employment Subsidies

Posted: 19 Oct 2001

See all articles by S. Nuri Erbas

S. Nuri Erbas

International Monetary Fund (IMF) - Middle East and Central Asia Department

Chera L. Sayers

Economic Consulting for Litigation

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Abstract

This paper presents a unified model of the impact on employment of a mandatory reduction in work hours in combination with an employment subsidy to reduce quasi-fixed costs of employment, while attempting to maintain worker's take-home pay or welfare level. Achieving the dual policy objectives of enhancing employment and maintaining worker income is not necessarily feasible. Nevertheless, a reduction in the legal workweek may induce a degree of downward wage flexibility, while an employment subsidy to firms accommodates downward wage rigidity. It may be possible, therefore, to increase employment with a policy that combines a reduction in the workweek with an employment subsidy. In general, however, the long run employment outcome is ambiguous, and a decline in output cannot be ruled out. More direct policy measures whose impact can be assessed with greater certainty - in particular, removing structural rigidities in the labor market - should be given priority to decrease long term unemployment.

Keywords: Workweek, overtime work, labor demand, labor supply, structural unemployment

Suggested Citation

Erbas, S. Nuri and Sayers, Chera L., Can a Shorter Workweek Induce Higher Employment? Mandatory Reductions in the Workweek and Employment Subsidies. Available at SSRN: https://ssrn.com/abstract=285521

S. Nuri Erbas (Contact Author)

International Monetary Fund (IMF) - Middle East and Central Asia Department ( email )

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Washington, DC 20431
United States

Chera L. Sayers

Economic Consulting for Litigation ( email )

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Palm Coast, FL 32137
United States
3016336610 (Phone)

HOME PAGE: http://www.economicexpertlitigation.com

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