Working Time Reductions and Labour Force Participation in Unemployment Contexts: A Note

Abstract

Work-sharing measures aim to reduce unemployment. When politicians are more interested in fostering this kind of measures is when the official unemployment rate published in statistics rises. There is already an important body of research addressing this issue, but it has mainly focused on the labour demand side. Nevertheless, it must not be forgotten that unemployment is determined both by demand and supply. The neoclassical model of labour supply predicts that a reduction of standard working hours encourages labour market participation. In this paper we show that this unambiguous result vanishes precisely when high unemployment makes that search transaction costs cannot be considered negligible.