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Working Paper 2005-045A

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"Uniform Working Hours and Structural Unemployment"
by Haoming Liu, Yi Wen, and Lijing Zhu

In this paper, we construct a simple model based on heterogeneity in workers' productivity and homogeneity in their working schedules. This simple model can generate unemployment, even if wages adjust instantaneously, firms are perfectly competitive, and firms can perfectly observe workers' productivity and effort. In our model, it is optimal for low-skilled workers to be unemployed because, on the one hand, firms do not find it optimal to hire low-skilled workers when labor hours must be synchronized across heterogeneous workers, and on the other hand, low-skilled workers do not find it attractive working for the same hours as high-skilled workers at competitive wages based on productivity. Thus our model offers an alternative explanation for why unskilled workers are a primary source of structural unemployment.

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Category > Monetary Policy/Macroeconomics
Author > Yi Wen