Working Time Reduction, Unpaid Overtime Work and Unemployment ⁄

This paper examines the impact that a reduction in the number of hours in a standard work week has on unemployment under a wage-posting framework combined with a matching model. Many studies have addressed this problem, some of which have developed an extension of an equilibrium search model with a Nash bargaining approach. However, the negotiation between an employer and a worker is not the only factor in determining the contents of a labor contract. We thus focus on the case in which each employer unilaterally determines the wage level and the number of hours worked and job seekers can only accept or reject an oer. The model takes into account the amount of unpaid overtime that employees work. Consequently, a reduction in the number of hours in a standard work week can decrease unemployment, provided that overtime work (as in Japan) is not fully compensated. In addition, we also find that this policy may increase the proportion of firms that post higher wage oers when employment is not frequently terminated.