New study finds 35-hour week mainly negative

• Author: Marcello Estevão/Filipa Sá
• Position: IMF Western Hemisphere Department and MIT
• Pages: 17-32

Page 17

Seven years ago, France instituted a 35-hour workweek. The intention was to create more jobs and increase welfare. But a new IMF study finds that the law has failed to achieve its overall objectives. It did not create more jobs and generated a mainly negative reaction from both companies and workers as they tried to neutralize the law's effect on hours of work and pay. And while the French now work shorter hours, this does not seem to have made them happier.

Page 32

France's 35-hour week: benefit or straitjacket?

Since the 1950s, the number of hours worked has been declining in Europe when compared with the United States and Japan. Today, the average American works about 400 hours more a year than the average European, although there are significant differences within Europe itself. Different suggestions have been put forward to explain this trend, ranging from tight labor market regulations and strong labor unions to a stronger preference for leisure in Europe.

In France, part of the declining trend in the average number of hours worked is due to laws that limit work time. In 1998, a new law forced companies with more than 20 employees to institute a 35-hour workweek by 2000. Smaller companies with fewer than 20 employees were given until 2002 to implement the measure.

The intention of the law was to create more jobs at a time of high unemployment. But how has it worked in practice? An IMF working paper sheds new light on the French approach to job creation.

Comparing large and small firms

The only way to correctly evaluate the empirical effect of the reduced workweek on employment and welfare is by isolating its effects from myriad political, economic, and social changes that were taking place when the law was enacted. The IMF study asked if the law has succeeded in creating more jobs and if the French were enjoying the extra time off.

The working paper studied the law's effect by comparing the behavior of workers in large and small firms before and after the new rules went into effect. The approach was similar to that of medical experiments: the treatment (the 35-hour workweek) was administered to one group (large firms) and not to another (small firms). By comparing these two groups, the study was able to evaluate the effect of the treatment. It found that the law had a number of unfortunate and unintended consequences:

* The...