The demand for leisure time in the presence of constrained work hours

W. DOUGLASS SHAW [*] This article presents a labor supply model designed to address situations of overemployment or underemployment in the labor market. Previous labor supply models have taken the possibility of work hour constraints into consideration but typically assumed that the existence of fixed work hours only influenced the decision of labor force participation. This ignores situations in which individuals choose to be employed at fixed-hour jobs even though these jobs do not offer the desired work hours. (JEL J22) I. INTRODUCTION Early attempts to incorporate time into consumer theory, such as those by Becker [1965] and by DeSerpa [1971], and to explain behavior in labor markets, such as Heckman's [1974] pioneering study, relied on the assumption that individuals are able to freely adjust the hours they work. The ability of an individual to achieve equilibrium in these models depends on flexible work hours. For many individuals, however, hours of work are likely to be constrained. Individuals wishing to increase or decrease their work time may face a decision of either accepting the fixed-hour schedule or exiting the labor force. More refined models of labor force participation put forth by Moffitt [1982], Tummers and Woittiez [1990], and Zabel [1993] recognized this by incorporating a fixed-hour constraint directly into the labor force participation decision. Generally, these models assume that individuals decide whether or not to accept employment by comparing offered hours with desired hours. If desired hours exceed offered hours, then the individual enters the labor force. Models with a fixed-hour constraint represent an improvement, but they ignore the possibility that a large proportion of the labor force is likely to be either underemployed or overemployed due to the ubiquity of fixed-hour employment. The presence of these types of jobs is well documented in the literature. Schor [1991] lists several reasons, including lack of lower-skilled jobs, costly fringe benefits, and increased business competition, why underemployment and overemployment is prevalent in the U.S. workplace. Prior studies by Mossin and Bronfenbrenner [1967] and by Altonji and Paxson [1988] document underemployment in the workplace. In a study of the U.S. work force, Ham [1982] found that unemployed and underemployed workers ranged from 19.2% in 1973 to 28.2% in 1970. [1] On the overemployment side, Tarling [1987] claims that "recent evidence indicates that many employees would be prepared to forgo some of their earnings in order to reduce their hours of work" (p. 85). Bockstael et al. [1987] make a simi lar observation, noting that in their sample, "individuals with fixed working hours appear to value time much more highly than the wage rate and would be willing to trade work for leisure" (p. 301). Hahnel [1998] concluded that results from a 1994 survey suggest that U.S. workers have a slight preference for pay cuts in order to reduce their work hours. About 50% of the respondents claimed they would accept a 10% reduction in pay in order to work a four-day week. Well over half of the respondents in the survey claimed that it was either "fairly difficult" or "almost impossible" to reduce their work hours, and over 60% reported that reducing their work hours would have a negative impact on their careers. Although the existence of underemployment and overemployment is well documented, explicitly accounting for it in labor supply models remains largely unexplored in the literature. In this paper, the labor supply model originally analyzed by Heckman [1974] is extended to recognize and incorporate fixed-hour situations. Heckman's model, which has been described as the most prevalent in the literature by Zabel [1993], is derived by comparing reservation and market wages. In its original form, it posited a strong link between the labor force participation decision and the labor supply decision. …