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Do flexible working hours amplify or stabilize unemployment fluctuations?

Marcin Kolasa, Michał Rubaszek and Małgorzata Walerych

European Economic Review, 2021, vol. 131, issue C

Abstract: In this paper we challenge the conventional view that increasing working time flexibility limits the amplitude of unemployment fluctuations. We start by showing that hours per worker in European countries are much less procyclical than in the US, and even co-move negatively with output in selected economies. This is confirmed by the results from a structural VAR model for the euro area, in which hours per worker increase after a contractionary monetary shock, exacerbating the upward pressure on unemployment. To understand these counterintuitive results, we develop a structural search and matching macroeconomic model with endogenous job separations that resemble layoffs. We show that this feature is key to generating a countercyclical response of hours per worker. When we augment the model with frictions in working hours adjustment and estimate it using euro area time series, we find that increasing flexibility of working time amplifies cyclical movements in unemployment.

Keywords: Labor market; Search and matching; Job separation; Working time; Business cycle fluctuations (search for similar items in EconPapers)
JEL-codes: E24 E32 J22 J64 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Are flexible working hours helpful in stabilizing unemployment? (2019) Downloads
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DOI: 10.1016/j.euroecorev.2020.103605

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