Implementing the 35 Hour Workweek by Means of Overtime Taxation

Victoria Osuna and José-Víctor Ríos-Rull

No E2002/04, Economic Working Papers at Centro de Estudios Andaluces from Centro de Estudios Andaluces

Abstract: In this paper we study the implications of taxing overtime work in order to reduce the workweek. To this purpose we study the roles played by team work, commuting costs and idiosyncratic output risk in determining the choice of the workweek. In order to obtain reliable estimates of the consequences of our policy experiment, we calibrate our model economy to the substitutability between overtime and employment using business cycle information. We find that a tax-rate of 12% of overtime wages implements the desired reduction of the workweek from 40 to 35 hours (12.5%). We also find that this tax change increases employment by 7% and reduces output and productivity by 10.2% and 4.2%, respectively. We also study a model economy with cross-sectional variations in the workweek that arise from plant-specific output risk and we find that in this model economy the tax-rates needed to achieve the same workweek reduction are significantly larger. Finally, we find that taxing overtime dampens business cycle fluctuations and that its welfare costs seem to be very large

Keywords: Workweek; Overtime; 35 Hours week; Labour Policy (search for similar items in EconPapers)
JEL-codes: E24 J22 J23 J38 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2002-03
New Economics Papers: this item is included in nep-dge and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Journal Article: Implementing the 35 Hour Workweek by Means of Overtime Taxation (2003)
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