Abstract
The paper analyses the impact of working time (reduction) on wages and unemployment. Using a union bargaining framework, I show that working time reduction leads to wage moderation in terms of annual remuneration. This result is independent of the bargaining regime, as it holds for the right-to-manage model and for the efficient bargaining model. As a result, the relation between hourly wages and working time is likely to be U-shaped. The level of working time where the impact of hours on hourly wages changes sign, is typically higher than the individual hours supply, unless the latter is strongly upward sloping. Extending these partial equilibrium results to the general equilibrium, this also leads to a U-shaped relation between equilibrium unemployment and working time: For relatively long working times, a reduction in working time will decrease the unemployment rate; whereas unemployment may increase for shorter working times.
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