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Work hours regulation in a search economy with adverse selection

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  • Willington, Manuel
  • Navarro, Lucas

Abstract

Two arguments for introducing a maximum work hours regulation are to enhance workers’ welfare by limiting excessive hours of work and to increase employment through work-spreading. We analyze the effects of this regulation in a labor market where adverse selection is an issue. Our results suggest that this policy would in fact reduce unemployment and worked hours, but it would also reduce the welfare of affected workers and aggregate welfare. This happens because in the new equilibrium wages are reduced and entry by firms is excessive. We obtain our results in a two-type competitive search model with adverse selection à la Guerrieri et al. (2010).

Suggested Citation

  • Willington, Manuel & Navarro, Lucas, 2015. "Work hours regulation in a search economy with adverse selection," Economics Letters, Elsevier, vol. 136(C), pages 46-48.
    • Handle: RePEc:eee:ecolet:v:136:y:2015:i:c:p:46-48
    DOI: 10.1016/j.econlet.2015.08.017
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    References listed on IDEAS

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    2. Sousa-Poza, Alfonso & Ziegler, Alexandre, 2003. "Asymmetric information about workers' productivity as a cause for inefficient long working hours," Labour Economics, Elsevier, vol. 10(6), pages 727-747, December.
    3. Rocheteau, Guillaume, 2002. "Working time regulation in a search economy with worker moral hazard," Journal of Public Economics, Elsevier, vol. 84(3), pages 387-425, June.
    4. Veronica Guerrieri & Robert Shimer & Randall Wright, 2010. "Adverse Selection in Competitive Search Equilibrium," Econometrica, Econometric Society, vol. 78(6), pages 1823-1862, November.
    5. Joseph Altonji & Jennifer Oldham, 2003. "Vacation laws and annual work hours," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 27(Q III), pages 19-29.
    6. Willington Manuel & Alegría Alexander, 2012. "Collusion in a One-Period Insurance Market with Adverse Selection," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-32, April.
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    More about this item

    Keywords

    Directed search; Adverse selection; Hours constraints;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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