Not Employed 37 Hours or Employed 41? - a Cge Analysis for Germany

24 Pages Posted: 5 Jul 2005 Last revised: 19 Aug 2008

See all articles by Klaus Conrad

Klaus Conrad

University of Mannheim - Department of Economics

Henrike Koschel

Center for European Economic Research (ZEW)

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics

Date Written: June 2005

Abstract

The objective of our analysis is to find out whether an increase in working time without pay compensation can be considered an adequate policy to reduce unemployment. From the perspective of economic theory, the outcome is in general ambiguous: On the one hand, as the increase in working time raises labor productivity per employee, conditional demand for labor will increase (substitution effect) and conditional demand for intermediate inputs will decline. Since, on the other hand, workers do have a longer working time anyway, no positive effect on the number of persons employed can be expected. However, output of the manufacturing industry, and thus unconditional demand for labor, capital and intermediate goods, will increase (output effect). In order to sell the additional output, firms have to lower prices. Depending on the price elasticities, revenues and hence profits will change. We quantify the employment effects of an economy-wide increase in weekly normal hours in Germany on the basis of a CGE model using an input-output framework for all sectors of the economy. Our simulation results support the argument of the opponents of longer working time that not more jobs will be created. However, when we recycled the higher tax revenues from GDP growth to lower the contribution to social security, then we have been able to support the claim of the proponents that more jobs will be created.

Keywords: Unemployment, labor market rigidities, longer working hours, computable general equilibrium modelling

JEL Classification: J21, J23, D58

Suggested Citation

Conrad, Klaus and Koschel, Henrike and Löschel, Andreas, Not Employed 37 Hours or Employed 41? - a Cge Analysis for Germany (June 2005). ZEW - Centre for European Economic Research Discussion Paper No. 05-042, Available at SSRN: https://ssrn.com/abstract=753364 or http://dx.doi.org/10.2139/ssrn.753364

Klaus Conrad (Contact Author)

University of Mannheim - Department of Economics ( email )

Seminargebaeude A5
68131 Mannheim
Germany
+49 621 1811896 (Phone)
+49 621 1811893 (Fax)

Henrike Koschel

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics ( email )

Universitätsstr. 14-16
48143 Munster
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/eroe

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