Effects of shorter hours on employment in disequilibrium models

Abstract

In this paper the employment effects of a wage-compensated and non-compensated reduction of standard working time are examined in the context of disequilibrium theory. In disequilibrium models with exogenous working time noncompensated shorter standard hours increase employment in both regimes, Keynesian and Classical unemployment; wage compensation reduces the employment response at a regime-dependent rate. If working time is endogenized by taking into account overtime effects, the employment response of shorter hours is positive in Keynesian unemployment and negative in Classical unemployment; wage compensation increases the employment effect in the Keynesian regime and decreases it in the Classical regime. A model is presented that allows for hours as well as capital stock adjustment and integrates non- competitive price setting.