Webinar: Marta Lopes, EUI - Working Hours, Employment and Productivity

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Melbourne Institute Seminar Series

Title: Working Hours, Employment and Productivity

Abstract: Does a reduction of weekly individual working hours increase employment and productivity? While this "work-sharing'' argument has significantly influenced legislation in Europe in the past decades, standard economic theory suggests that the impacts are likely to be detrimental. In this paper, we use matched employer-employee data to evaluate two policy reforms that reduced standard hours in the 1990s in Portugal, first from 48 to 44h, and then from 44 to 40h. Using a differences-in-differences approach, which exploits initial heterogeneity in the level of hours by firms, we show that both reforms led to significant hours reductions and hourly wage increases. Overall, we find no evidence in favor of the ''work-sharing'' argument, with the later reform actually decreasing employment in more affected firms. Instead, we observe that both reforms led to significant gains in terms of productivity (per hour worked). These results contribute to the recent policy debate on working time reductions, showing that effects are unlikely to be linear and depend on the initial level of hours. To reconcile the results with the theory, we build a search and matching model where collective agreements restrict the degree of freedom with which firms demand hours and employment, therefore generating heterogeneous responses to similar policy reforms.

Presenter: Marta Lopes, European University Institute (EUI)

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