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European
Economic Perspectives 25
The
Thirty Nine Hours
France
has introduced a mandatory reduction in the working week. Will this
reduce unemployment?
In
1998, the French government passed legislation stipulating a maximum
working week of 35 hours by the year 2000. French firms are now in the
process of negotiating the timetable for reducing hours with their
unions or personnel delegates, starting from the current 39-hour week.
Similar projects have been envisaged in other European countries,
notably Italy and Spain, in the hope that cuts in working time will
prove to be an efficient policy for reducing unemployment.
But
while the idea of mandatory reductions in weekly hours is becoming
increasingly popular among European politicians and union leaders, there
have been very few empirical assessments of the effects of such
regulation. This is surprising since France has already carried out such
an experiment.
On
1 February 1982, a few months after François Mitterrand became
President, the government decreed a shortening of the working week from
40 to 39 hours. This policy had been promised in the socialists’
election manifesto but its prompt implementation was still largely
unexpected. At the same time, the government mandated stable monthly
earnings for workers on the minimum wage, which had itself been raised
by 5% in July 1981. It also recommended stabilization of monthly
earnings for other workers, advice followed by 90% of firms.
A
recent CEPR Discussion Paper
by Bruno Crépon and Francis Kramarz investigates the impact of the 1982
reduction in working hours on workers’ transitions between employment
and unemployment. The analysis uses longitudinal data on individual
wages, hours and employment derived from the French Labour Force Survey
(Enquête Emploi) for the period 1977–87.
The
researchers take two different approaches to the data, based on two
natural experiments associated with the cut in hours. In the first, they
compare workers who worked between 36 and 39 hours before 1982 with
observationally identical workers who worked exactly 40 hours. The data
reveal that workers directly affected by the changes (those working 40
hours in March 1981) were more likely to lose their jobs between
1981–2 than workers not affected by the changes (those working 36–39
hours in March 1981). Employment fell by between 2% and 4%.
The
second experiment takes advantage of a specific feature of the
implementation process of the reduction in hours: the fact that some
firms were surprised by the 1 February 1982 decree enforcing the new
standard. Hence, by April 1982, when that year’s French Labour Force
Survey took place, a sizeable share of firms had not had time to
complete negotiations with their employees and many workers were still
on 40-hour weeks. The research indicates that these workers were more
strongly affected by the reduction in standard hours, with induced job
losses of at least 4.1%.
Why
did the maximum hours legislation lead to these large employment losses,
an outcome so contrary to the goal of the policy? What seems to have
happened is that with workers’ monthly earnings typically stable, the
reduction in hours effectively increased the hourly pay of those working
more than 39 hours. Any gains in workers’ hourly productivity seem to
have been insufficient to compensate employers for this increase and
they responded by firing people.
The
research also shows that not only did employment fall as a consequence
of the hours reduction, but lower-wage workers suffered
disproportionately. Indeed, minimum wage workers were the group most
affected by the changes, with job losses of more than 8%.
This
result supports the view that the combination of reduced hours and
mandatory (or at least, recommended) earnings stability led to an
increase in hourly pay that was unacceptable to many firms. Wage
rigidity was most binding for low-wage workers, particularly after the
5% increase in the minimum wage, and the most effective
cost-minimization strategy for firms was to fire some of these workers
and hire new ones. Such replacements could still be paid the minimum
wage rate but they had monthly earnings that were based on actual hours
worked.
As
the researchers acknowledge, the 35-hour working week currently being
introduced may not have the same effects as the 39-hour week because its
arrival has been flagged well in advance and is not a surprise. But the
1982 experience suggests that cuts in working time are by no means a
sure route to higher employment.
This
article discusses research reported in ‘Employed 40 Hours or
Not-Employed 39: Lessons from the 1982 Mandatory Reduction of the
Workweek’, CEPR Discussion Paper No. 2358 (January 2000) by Bruno Crépon
and Francis Kramarz. The authors are both at INSEE-CREST; and Kramarz is
a Research Fellow in CEPR’s Labour Economics programme.
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