In a world with finite natural resources, reducing working time can create employment.

What is it about?

We study the consequences of a working time reduction in a macroeconomic model with finite natural resources and in which technical progress cannot reduce the resource content of human productions to zero. We show that if natural resources are scarce enough, reducing working time increases the number of employed people. When natural resources are scarcer, the positive employment effect is stronger and the negative initial impact on economic activity is more limited. Reducing working time increases in-work effort and the hourly wage. Individual labour income however decreases. But the welfare effect of this income loss may be more than compensated by the rise in the time spent out of work.

Featured Image

Photo by Milad Fakurian on Unsplash

Photo by Milad Fakurian on Unsplash

Why is it important?

The length of the working week or day is a hot topic because it directly affects the well-being of workers at given earnings. In addition, it has been argued that reducing this length could improve the allocation of jobs, some people being involuntary unemployed while others working sometimes (too) long hours. Whether the reduction of working time per se can improve a range of indicators (well-being of families, unemployment rates and the like) remains controversial in both academic and policy debates. The experiences in the Western World lead to at best mixed results. More precisely, a positive effect on employment is at best a short-run result that does not hold in the long run once investment and entry of firms are considered. All available economic studies of the reduction of working time ignore the finiteness of natural resources (whether renewable or not) and the fact that the production of goods and services cannot be fully dematerialized. Put another way, despite technical progress, goods and services cannot and will never be produced without using at least some natural resources whose availability is limited. Taking these resource constraints into account changes the analysis of the implications of a cut in working time. Such a cut decreases the pressure of human activity on natural resources and thereby the exploitation costs of those resources.

Perspectives