Work Sharing and Overtime

Abstract

This paper deals with the employment effects of reduced working time when firms' endogenous response of overtime is considered. The analysis distinguishes between fixed and profit-maximizing levels of output as well as between interior and corner solutions. It is shown that under plausible assumptions, a reduction in working time is quite likely to be counterproductive as an employment-promoting measure. I. Introduction A reduction in working time has been proposed as a method of increasing employment through work sharing. Such proposals, however, often seem to build on an oversimplified view of the world where little consideration is given to various possible repercussions. Most economists therefore seem rather sceptical towards such proposals; for more or less critical discussions see e.g. Hart & Sloane (1979), Charpin (1984), Brunstad & Holm (1984), Calmfors (1985), Hoel (1986, 1987), Hoel & Vale (1986) and Dreze (1987). None of these papers, however, takes into account that actual working time will differ from normal working time to the extent that there is overtime work. The aim of this paper is to analyse how endogenous responses of overtime may affect the outcome, with respect to employment, of reducing the normal working time. Although overtime work currently accounts for only a minor proportion of total working time - around three per cent in Sweden - we believe this to be an important channel, since a major reduction in working time will represent a nonmarginal change which is likely to produce significant changes in established practices. Our results add to the doubts that a reduction in working time increases employment. There has been some recent work on the relationship between normal working time and overtime; cf. Hart (1984), Fitzroy & Hart (1985)

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