Designing the Optimal Length of Working Time

Carlo Altavilla (), Antonio Garofalo () and Concetto Paolo Vinci
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Carlo Altavilla: CELPE University of Salerno, University of Naples Parthenope
Antonio Garofalo: CELPE University of Salerno, University of Naples Parthenope

CELPE Discussion Papers from CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy

Abstract: How many hours per week should workers in the United States and Germany spend at their paying jobs? The present paper addresses this question by constructing policymakers’ reaction functions capable of modelling the optimal length of working time as a function of the relevant labour market variables. The empirical analysis is based on the optimal control algorithm. Given a policymaker’s loss function and a structural model of the labour market we define alternative specifications of reaction functions where the response coefficients indicate how policymakers should react to any news in the labour market in order to stabilize employment and wages. We also perform a comparative analysis on the ability of the rules to correspond to historical working-time records. The results suggest that simple rules perform quite well and that the advantages obtained from adopting an optimal control-based rule are not so great. Moreover, the analysis emphasizes the success of the wage-based rule and of the employment based rule in the US and Germany, respectively. Finally, we propose a policy rule to capture the dynamics of the weekly working hours. According to our rule the length of the workweek is an inverse function of the deviation between the actual and potential employment level.

Keywords: Policy Rule; Working-time; Dynamic Optimization (search for similar items in EconPapers)
JEL-codes: C32 J23 (search for similar items in EconPapers)
Date: 2005-01
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Citations: View citations in EconPapers (1)

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