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Are flexible working hours helpful in stabilizing unemployment?

Marcin Kolasa (), Michał Rubaszek () and Małgorzata Walerych

No 24/2019, Research Discussion Papers from Bank of Finland

Abstract: In this paper we challenge the conventional view that increasing working time exibility 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 in some economies even co-move negatively with output. This is confirmed by the results from a structural VAR model for the euro area, in which working hours 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 separation. We show that this feature is key to generate countercyclical adjustments in working hours. 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.

JEL-codes: E24 E32 J22 J64 (search for similar items in EconPapers)
Date: 2019-10-02
New Economics Papers: this item is included in nep-dge, nep-eec, nep-lma and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bof:bofrdp:2019_024

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