Loosening Hours Constraints on the Supply of Labor - What if Germans Had a Dutch Labor Market?

The lack of working hours flexibility is regarded as an important hindrance for work-sharing in Germany. Surveys show that employees often work more hours than they actually desire to. Given these indications on hours restrictions, I address the following questions: First, how would Germans adjust their labor supply if the labor market were more flexible? Is it likely that more work-sharing would take place and secondly, how did the willingness to do so change from 1995 to 1998? And finally, did the mismatch between working hours preferences and actual working hours shrink during that period or does the employers' view of flexible working time arrangement not reconcile with individual time sovereignty. Therefore, I simulate Germans' working hours in a more flexible but real world, namely the Dutch labor market. A reduced-form labor supply model with hours restrictions is used to describe how the working hours preferences of the Dutch translate into their actual working hours. Applying this "Dutch model" to the German data allows one to calculate the hypothetical labor supply of Germans in the Dutch labor market. The fact that the German and Dutch welfare states and labor market institutions have a number of features in common allows me to derive implementable strategies to foster employment growth in Germany. The results indicate that the match between actual and desired hours of Germans would improve if they faced the same hours flexibility as Dutch employees. Another piece of good news is that hours restrictions shrank over time, that is, Germany seems to be moving towards a more flexible labor market. I can show that the gains from moving to the new situation are distributed very unevenly. People wanting to work part-time would face a much higher probability of realizing their preferences if they had a Dutch labor market. Thus, there exists some potential for additional work-sharing in Germany. However, women who want to work full-time are more likely to be underemployed. On average, people would adjust their working hours towards a shorter work week. Thus, work could be shared among more individuals, both in 1995 and 1998. However, the employment effects are expected to be smaller compared to estimates ignoring the fact that certain working hours preferences are hardly feasible. Even if the derivation of expected employment effects is very tempting, this venture is doomed to failure. Working hours and workers are not perfect substitutes and firms do not necessarily replace the individual reduction of weekly working hours by additional employees. Therefore, I will elaborate conditions under which the employment effects out of increasing hours flexibility could be maximized and derive some policy implications.

Wolf, Elke (2000), Loosening Hours Constraints on the Supply of Labor - What if Germans Had a Dutch Labor Market?, ZEW Discussion Paper Nr. 00-54, Mannheim.