Employed 40 Hours or Not-Employed 39 : Lessons from the 1982 Mandatory Reduction of the Workweek

We use longitudinal individual wage, hours, and employment data to investigate the effect of the February 1, 1982 mandatory reduction of weekly working hours in France. Just after Francois Mitterrand's election in May 1981, the government decided to increase the minimum wage by 5%. Then, as promised in its electoral program, the socialist government reduced the workweek from 40 to 39 hours. At the same time, it mandated stable monthly earnings for minimum wage workers and recommended the stabilization of monthly earnings for other workers recommendations followed by 90% of the firms). We show that workers directly affected by these changes - those working 40 hours in March 1981 as well as those working overtime at the same date - were more likely to lose their jobs between 1981 and 1982 than workers not affected by the changes - those working 36 to 39 hours in March 1981. Moreover, because the decree enforcing the new standard was issued faster than earlier promises, some firms had no time to complete negotiations and their workers were still working 40 hours after February 1, 1982. We show that these workers were also strongly affected by the reduction in standard hours. Our estimates of the impact of this one-hour reduction of the workweek on employment losses vary between 2% and 4%, depending on the methodology or the data used. Furthermore, we show that minimum wage workers were most affected by the changes. This result, consistent with our model, is due to the impossibility of adjusting their monthly wage, which results in excess job destruction and creation. These results should help us understand the possible effects of the upcoming mandatory reduction of hours in France, where the maximum weekly working hours declined from 39 to 35 hours beginning in January 2000. Similar programs are envisaged in other European countries, which hope that hours reductions will be an efficient policy for reducing unemployment