Economic effects of a reduction in working hours : a simulation study for western Germany with the macro-economic model SYSIFO

Abstract

"Since the start of the high unemployment, there has been discussion in Germany of reductions in working hours, also for employment policy reasons, as a means of avoiding the threat of redundancies or - for lack of additional jobs - to spread the work available over more people to reduce unemployment. In addition to traditional concepts such as cuts in the statutory working week and increased part-time work, new forms of working time arrangements move into focus here which lead, for example via annual working time accounts, to operating hours and working hours being made more flexible and less closely bound, as well as to an increase in the time sovereignty of the employees. The economic effects of a reduction in working hours, in particular the effects on employment are, however, judged very differently, and not only by the two sides of industry. This article demonstrates economic connections of a general reduction in working hours. As a reduction in working hours influences the economy in several ways, some of which compensate for others, it is very difficult to deduce definite statements from economic theory, so macroeconomic simulation studies have to be used. For this reason a series of simulations were carried out on the effect of general reductions in annual working time, using the lAB/Westphal model, which was developed from the SYSIFO model. The following results can be deduced from the simulation experiments: - A reduction in working hours has a positive effect on employment, both with and without compensatory increases in wage rates, whereby, however, the employment effect is clearly less significant in the case of a reduction in working hours with full compensatory increases in wage rates. - The upswing in employment induced by the reduction in working hours is paid for with price increases and a loss of affluence and growth. - The effects of a reduction in working hours which increase employment, wages and prices, result in reduced state transfer payments and in the medium term also in additional tax revenue for the state. If this is then put back into the economic circulation, the positive employment impulse of a reduction in working hours increases and the losses in affluence and growth can begin to be compensated. - The most advantageous strategy from a employment policy point of view is a reduction in working hours under the following conditions: - without a compensatory increase in wage rates - use of the state's savings in expenditure and additional revenue to reduce taxes and non-wage labour costs To qualify this it must be stressed that the employment promoting impulses can only be deduced with the model for the national economic average. Disaggregation by trades or industries, regions, occupations or qualifications could result in differing effects. Also, the positive statements are valid only for reductions in working hours which do not differ greatly in type and scope from the previous development of annual working time observed in the past. More extensive drops in the average annual working.time could lead to reactions which cancel the connections deduced from the past and are therefore not taken into account in the model. Limitations for the extent of reductions in working hours also arise from the international competition connections. It can also be expected that in the case of a completely different pattern of reduction in working hours, such as a definite increase in voluntary transitions into part-time employment as well as more extensive flexibility and independence of operating and working hours, other effects will occur. There is something to be said for the fact that in the latter case the negative attendant circumstances could presumably be avoided to a large extent. As a result of its defensive character, an isolated reduction in working hours occurring purely for employment policy reasons due to a lack of sufficient jobs available elsewhere, and not embedded in a more extensive strategy of job creation, could hardly be suitable to solve the problems on the labour market permanently." (Author's abstract, IAB-Doku) ((en))

Cite article

Barth, A. & Zika, G. (1996): Volkswirtschaftliche Effekte einer Arbeitszeitverkürzung. Eine Simulationsstudie für Westdeutschland mit dem makroökonometrischen Modell SYSIFO. In: Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Vol. 29, No. 2, p. 179-202.