Working time, taxation and unemployment in general equilibrium

We study a simple general equilibrium model in which wages are set by collective bargaining as a mark-up over benefits. The inclusion of taxation and the government budget complicates the relationship between employment and hours worked; hence, we present numerical simulations of employment in terms of hours. There is a range of initial hours from which employment can be increased, or unemployment reduced, by cutting standard working time. Welfare conflicts are explained, but our examples show relatively small profit reductions when hours are diminished below the employers ’ (collective) optimum, and substantial employment gains. D 2002 Elsevie