Working Time and Employment Under Uncertainty

The standard literature on working time has modelled the decisions of firms in a deterministic framework in which firms can choose between employment and overtime (given mandated standard hours). Contrary to this approach, we consider the impact of uncertainty and real options on the decision of working time and examine the determinants of employment and hours in a stochastic framework. A number of simulation exercises to illustrate the workings of the model are also undertaken. ∗Acknowledgements: We would like to thank Giuseppe Bertola (European University Institute, Florence), Bob Hart (Stirling University), Bill Russell (Dundee University), the editor and an anonymous referee for helpful commmets on an earlier draft. E-mail addresses: Chen: [email protected]; Funke: [email protected]