ABSTRACT
In the ‘real’ world, governments may well obtain signals concerning such employment effects as, for example, employers’ associations argue that reductions in standard hours, especially with full wage compensation, will increase the relative price of the labour stock input and lead to scale and substitution effects that run against the primary goal of creating new jobs. One possible counter-reaction could be for the government to offset unfavourable price responses by offering marginal employment subsidies that accompany workweek reductions. For example, following the cut in hours, the firm would receive a per-capita wage (or non-wage) subsidy for each new job created over and above the number of workers on the payroll at the time of the policy change. Naturally, such intervention has wider macroeconomic implications, some of which we will consider later, but the strategy may appear to be sound at the micro level. Indeed, this type of policy approach has been followed in several countries. The best-known example in Europe is that of the French solidarity contracts (see Hart, 1984c), although in this case the standard workweek cuts were encouraged on a voluntary basis by contingent marginal employment subsidies with respect to social security contributions. Drèze (1985) reports on a similar scheme introduced in Belgium.
