The economic impact of a reduction in working hours in Austria
Mag. Ludwig Strohner
Head of the Public Finance Research Section
DI Johannes Berger
Head of the Labour Market and Social Security Research Section
A reduction in normal public working hours is repeatedly part of the public debate. EcoAustria has analyzed and evaluated the economic impact of such a reduction in working hours from 40 to 32 hours for Austria.
The reduction in statutory working hours leads to a significant adjustment in the hours actually worked. According to empirical studies, productivity per hour is only slightly affected by the reduction in working hours. Accordingly, in the model simulation with the PuMA macro model, value added, earned income and thus private consumption are reduced to a considerable extent.
If the reduction in working hours is combined with wage compensation, i.e. full compensation of the loss of income through higher hourly wages, the loss of value added is further exacerbated because it increases companies' wage costs and thus dampens the demand for employment. According to the model simulation, the employment effect of a reduction in working hours is moderately positive without wage compensation; with wage compensation, not only do working hours fall, but employment also declines.
In the case of a one-third regulation, where one-third of the costs are borne by companies through higher hourly wages, one-third by employees in the form of lower incomes and one-third by the public sector through a reduction in non-wage labor costs, the employment effect is very moderate, so that the reduction in average working hours is the dominant element for the economic effect.
A summary of the results for the three different wage compensation variants can be found in this table.
Table: Summary of key results of a reduction in working hours, long-term effects (after 20 years)
This study is an update to Berger et al. (2021). The results of the theoretical and empirical scientific literature on the topic of working hours are reviewed there and form an essential basis for the analysis of a reduction in working hours in Austria.
In this update, the results of the labor force survey for 2022 are presented in a first step, which are then used in a second step for the model-based analysis.
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