This paper examines the role that work incentives play in the determination of work hours. Following previous research by Lang (1989), we use a conventional efficiency wage model to analyze how firms respond to worker preferences regarding wage-hours packages. We find that when workers are homogeneous, the role of worker preferences in determining work hours is similar to the simple neoclassical model of labor supply. For instance, if worker preferences shift in favor of shorter hours, firms will respond by offering jobs entailing shorter hours. When workers have heterogeneous preferences, however, employers will want to use a worker's hours preferences as a signal for the responsiveness of the worker to the work incentives used by the firm, and workers in turn may not reveal their hours preferences. Our key finding in this instance is that the labor market equilibrium may be characterized by a sub-optimal number of short-hour jobs. This shortage of short-hour jobs is likely to be found in high wage labor markets.
*Published:
EI, Vol. 33, no. 2 (1995): 257-273.
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