A welfare analysis of bargaining frictions

This paper aims at analyzing the welfare effects of allowing different levels of flexibility in the choice of the numbers of hours worked (part-time, full-time, extra-time). To do so we consider a setting with bargaining frictions, partially indivisible labor, heterogeneous agents and firms, and idiosyncratic shocks. Given a certain level of bargaining frictions, we analyze the effect of allowing for a greater divisibility of the working day on the welfare of the agents. We then characterize situations in which it may be optimal to have some degree of bargaining frictions. Next, we ask whether economies with varying degrees of bargaining friction have preferences over the level of divisibility of labor. Finally, the effects of restricting the length of the work day or allowing more flexibility in the use of extra-time on the welfare of the agents are discussed