The standard literature on working time has modelled the decisions of firms in a deterministic framework in which firms can choose between employment and overtime (given mandated standard hours). Contrary to this approach, we consider the impact of uncertainty and real options on the decision of...

Following the real option literature, whether or not uncertainty shocks drive business cycles depends on the degree of adjustment frictions. The more plants freeze and remain inactive in response to increased uncertainty, the stronger the adverse effects on the economic activity. Using quarterly...