Do Labor Markets Provide Enough Short-Hour Jobs? an Analysis of Work Hours and Work Incentives

By Rebitzer, James B.; Taylor, Lowell J. | Economic Inquiry, April 1995 | Go to article overview

Do Labor Markets Provide Enough Short-Hour Jobs? an Analysis of Work Hours and Work Incentives


Rebitzer, James B., Taylor, Lowell J., Economic Inquiry


I. INTRODUCTION

Female labor force participation has increased dramatically over the past three decades. Much of this change is due to the increased participation of married women and women with children.(1) In households where both adults participate in the labor force, or where there is a single working parent, individuals will often have greater demands on their time at home and may therefore desire patterns of work hours that differ from other workers. Given the gender-based division of labor in most American households, many of the women entering the labor force may prefer shorter (and perhaps more flexible) work weeks.(2) Furthermore, as sex roles adjust to accommodate the changing work and career aspirations of women, it is reasonable to expect that increasing numbers of men will also prefer shorter work weeks. The prospects for equality of economic opportunity between men and women rest in large measure on how well and how rapidly labor markets accommodate the hours preferences of workers who desire this flexibility.

In this paper we ask whether labor markets will provide the optimal number of short-hour jobs in response to an increase in demand for short hours on the part of employees. According to the simple textbook model of the determinants of work hours, the answer to this question is clearly yes. Firms have an incentive to elicit information about their hours preferences because this allows them to offer labor contracts that minimize cost. Similarly, workers have an incentive to reveal their preferences to finns because this information is used to construct wage and hours packages in which workers are asked to work the utility-maximizing number of hours at the market-clearing wage.

Labor market outcomes may be considerably more complex, however, in a setting where firms rely on work incentives to regulate the effort exerted by employees.(3) We find that in a simple efficiency wage model (along the lines of Shapiro and Stiglitz [1984] and Bowles [1985], but with a heterogeneous work force) workers' hours preferences may provide an indicator of their responsiveness to the work incentives. In this setting employers will in general not be able to elicit accurate information about hours preferences from employees. We show that this market failure may lead in turn to labor market equilibria that are characterized by an underprovision of short-hour jobs. We find further that the shortage of short-hour jobs most likely occurs in high-wage labor markets.

Our model suggests that the simple textbook analysis of hours determination relies upon the wrong market metaphor. The conventional approach presumes that the determination of work hours is similar to the determination of car colors. Workers have an incentive to reveal their true hours preferences and employers have anincentive to solicit these preferences for the same reason that consumers have an incentive to reveal their color preferences and car makers have an incentive to solicit these preferences.

In our view, a more appropriate market metaphor for hours determination is the market for health insurance. Employees have an incentive to portray themselves as desiring long hours for the same reasons that purchasers of health insurance will want to portray themselves as having no health problems. Insurance providers must be concerned about the unobservable characteristics of individuals who are attracted to the various insurance contracts they offer. We suggest that employers face similar concerns when offering wage and hours packages.

The paper proceeds as follows. In the next section (section II), we analyze the determination of wages and work hours when finns use dismissal threats to motivate a homogeneous group of workers. Section III examines the case where workers have heterogeneous preferences with respect to hours of work. In section IV, we discuss the empirical plausibility of our model. Section V provides concluding remarks. …

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