The Myth of Worksharing
Published In: Labour Economics, v. 11, no. 3, June 2004, p. 293-313
Posted on RAND.org on December 31, 2003
Worksharing is considered by many as a promising public policy to reduce unemployment. This paper reviews the most pertinent theoretical and recent empirical contributions to the literature on worksharing. Next, we provide new empirical evidence on this issue by a longitudinal cross-country analysis of the long-run effects of a reduction in working hours on employment and wages, exploiting aggregate data for 16 OECD countries. The conclusions of the theoretical literature survey are indecisive: the efficacy of worksharing as an employment enhancing policy tool depends heavily on the setting in which the analysis takes place. In line with recent empirical studies, our results do not support the proposition that worksharing promotes employment. The results show a positive direct effect on employment of a reduction in working hours. However, taking into account indirect effects, in particular the upward effects on wages, the authors find that the long-run effect becomes small and insignificant.