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This study examines the implications of the traditional 40-hour
work week using an incomplete-markets model that incorporates
both the extensive and intensive margins of labor supply, along with
a wage penalty for working fewer hours than a specified threshold.
The 40-hour standard emerges as a key driver of labor supply elasticities:
micro-level elasticities remain small, whereas macro-level
elasticities are larger, reflecting adjustment that occurs primarily
along the extensive margin. Households constrained by the 40-hour
schedule face the adverse welfare effects of business cycle fluctuations,
as the rigid schedule limits their ability to adjust hours in
response to wage changes.
