Economics Webinar - The 40-Hour Work Week

This study explores significant implications associated with the 40-hour work week standard. A novel heterogeneous-agent model is developed, incorporating a wage penalty function faced by households when working fewer hours than a specific threshold. The calibrated model captures the salient features of the empirical distribution of hours worked, particularly highlighting a distinct spike at 40 hours in the distribution. The primary finding reveals that the 40-hour work week serves as a pivotal determinant for both micro and macro labor supply elasticities. This implies that micro and macro elasticities cannot be treated as independent parameters within the economic environment. Furthermore, the study emphasizes the critical role played by the 40-hour work week and its associated frictions in revealing distributional consequences over the business cycle. Ultimately, this study underscores the vulnerability of households constrained by the 40-hour work week to the adverse effects of business cycle fluctuations.