Constraints on the Choice of Work Hours: Agency vs. Specific-Capital

34 Pages Posted: 29 Dec 2006 Last revised: 15 Aug 2010

See all articles by Shulamit Kahn

Shulamit Kahn

Boston University - Department of Finance & Economics

Kevin Lang

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 1987

Abstract

Most models of implicit lifetime contracts imply that at any particular point in time, workers' wages and value of marginal product (VMP) will diverge. As a result, the contract will have to specify hours as well as wages, since firms will desire to prevent workers from working more when the wage is greater than VMP and from working less when the wage is less than VMP. this divergence, combined with the fact that in efficient contracts, the hours are set so that VMP equals the marginal value of leisure, implies that workers will face binding hours constraints. We show that the two major models of lifetime contracts, the agency model and the firm-specific capital model, make opposite predictions regarding the relation between work hours constraints and job tenure. We test these predictions. Our results indicate that neither model of efficient long-term contracts explains the observed pattern of hours constraints. Therefore, we briefly consider other explanations.

Suggested Citation

Kahn, Shulamit and Lang, Kevin, Constraints on the Choice of Work Hours: Agency vs. Specific-Capital (May 1987). NBER Working Paper No. w2238, Available at SSRN: https://ssrn.com/abstract=347023

Shulamit Kahn (Contact Author)

Boston University - Department of Finance & Economics ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-4299 (Phone)
617-353-6667 (Fax)

Kevin Lang

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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