Has Work-Sharing Worked in Germany? Jennifer Hunt The Quarterly Journal of Economics, Vol. 114, No. 1 (Feb., 1999), 117-148. Stable URL: http links jstor.orgsici?sici=01093-5933% 28199902920 1 145U3A193C 1 7%3AHW WIGS IE2.0.CO®IB2-R The Quarterty Journal of Eeonontics is currently published by The MIT Press. Your use of the ISTOR archive indicates your acceptance of ISTOR's Terms and Conditions of Use, available at flip: feworwjtor org/aboutterms.htmal. ISTOR's Terms and Conditions of Use provides, in par, that unless you fave obtained pcior permission, you may not dowaload an cnt isus of @ journal or multiple copies of articles, and you may use content inthe ISTOR archive only for your personal, non-commercial uss. Please contact the publisher cegarding any further use of this work. Publisher contact information may be obtained at bhupsferwer,jstor.orp/joumals/mitpress.htrl. Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transtnission. ISTOR is an independent not-for-profit organization dedicated to creating and preserving a digital archive of scholarly journals. For more information regarding ISTOR, please contact support @jstor.org- hup:thrww jstor.orgy ‘Thu Now 17 10:21:34 2005HAS WORK-SHARING WORKED IN GERMANY?* Jexwirer Hoxr Starting in 195, (West) German unions began to reduce standard hours on an indugtey-byrndustey basi, In an abtempt to raise employment. Whether this ‘worsharing" vorks is theoretically embiguous. { exploit the crass-induatry variation in standard hours reductions to examine their imapact on actal hours worked, wages, and employment. Analysis of industay-level data suggests that “workcsharing” may have reduced amployrnant in the poriod 1984 1994. Using {ndividua) data from the German Socie-Benromic Panel, I eubstantate the union Claim of "ull wage compensation: the hourly wage rove encugh W offat the Aecline im setal hours worked, ‘There is a widespread popular belief that unemployment can be reduced by reducing the number of hours worked per person. ‘The reasoning is usually based on the idea that labor input is fixed, and itis thought that ifeach worker works fewer hours, this work can be spread over mote workers, and employment will rise, This is known as work-shating, However, if restrictions on hous make labor less attractive to employers, they will substitute to other inputs, and there will also be a scale effect reducing use of all inputs. Interest in work-sharing resurfaces periodically in different countries, and has been particularly high in Burope in recent, years, following the rise in unemployment since the mid-1970s, ‘The tool of choice in Europe for the reduction of working hours is a reduction in the standard workweek that is, a reduction in the number of hours beyond which an overtime premium must: be paid. In the 1980s the French government mandated reductions in the standard workweek, and the Belgian government, created incentives for employers to cut hours, while German unions have achieved more far-reaching reductions on an industey-by. industry basis. In 1998 the French government presented plans to legislate a reduction in standard hours from 29 to 35, while * Thank Alison Booth, Michael Burda, Haward Lazear, Daniel Hamersnea, ‘Michoal Lochnar, John. Psncavel, Anoo Hackon Royalty, Joe. Waldiogel, and feminae parieipanta 2. the Deutsches Tact far Wirtshafetarschingy the Hoover Institution, the Humboldt Universitat zu Berlin, MeMlasier University (Conforonce an Bmoployment Preteckion|, tie Nabanal Bureau gt Zeonamic Ree earch, Norinteestarn University, Stanford University and the Zentrum fr E Wistodtforscuang (Cnsverstat anml) for eggcetone Be band Blaine provided me with eaeaniatnfarmation, and Treas Rauherger cx Rrudrew Bearkman were invaluable io setting ap the GROEP data. Ths research ‘was princally conducted whilel was a National Melow at the Hoover nsttation. 1 1960 bythe President and Fellows of Havas Cllge andthe Massoenselia Iai of Technsbow. Tre Quarry doureat of Beotamizn, Pabesoey 1969 uy8 QUARTERLY JOURNAL OF ECONOMICS similar moves were made in Italy. In the United States mandated overtime premiums have been preferred as an inducement, to work-sharing (the 50 percent. premium is higher than typical premiums in Eurape). The use of standard hours as an hours- reducing tool introduces further ambiguity into the thearetical problem, however, since employers have the option of shifting to using more overtime. ‘Most studies of reductions in standard hours have relied on aggregate time series, where the effect of falling standard hours could be confounded with the effect af another variable trending down. In this paper I take advantage af the industry-level variation in standard hours reductions in (West) Germany to identify the impact on employment and other variables, The reductions, negotiated between unions and employers, began with the metalworking and printing sectors in 1985, where standard hours fell in steps from 40 ta 36 between 1984 and 1994. Most other sectors had a smaller reduction beginning later, commonly in 1989, Since many of the reductions were agreed ta ceveral years in advance, and could not be amended in response to unforeseen economie changes, they are taken to be exagenous. ‘There appears tobe a consensus in Germany that this episode of reductions in standard hours translated largely into reductions in actual hours per worker, although this has not been examined using micro-data.? These is less consensus on the jaint movement of wages and standard hours, however, which is critical tothe final impact on employment. On the one hand, unions claim to have achieved standard hours reduction with “full wage compensa- tion,® that is, no reduction in monthly pay, which suggests that hourly wages may have risen in affected industries relative to those with no standard hours reductions. On the other hand, observers including union observers suggest that standard hours reductions eaused “wage restraint.” It is generally believed that employment rose, despite an almost total absence of ecanametirie Sing tat mblayiont so whan hour ar cut include Hare ad Sarge Pai and Seatarel (068) Pane and Reni), Wodlvent (Gastar eg! 1808 Sudesh fang emplarment yo eet nude Brana 1989) ong aed Bavinwsor[aGo) nc Latiront S901] Fare oh Bidar od Wien [ab ane oewcction aration ty aours, and Anno eee 2° For example Silo aad Zeige 1987] ihre that dhe matalworting inausicy quetimg rane Hy one-third of am hou presporce to fane-hocr fal tinder hour Thi gwen responce larger than tt ealenated by eaten ‘hk nk rr be peal cases a Testi riled by the eral of Lebment [1991 while the tend Sn ny 190 dest housy wages tous wb Avene Boum reducaoe