The 35-h workweek regulation, fully adopted in France in 2000, has been one of the most significant regulatory shocks imposed on any large economy. Yet the effects of the regulation remain controversial. In this paper, we evaluate the effects of the 35-h workweek regulation on unemployment and real GDP in France using a counterfactual analysis. We exploit the dependence of unemployment and GDP growth among different economic entities and construct the counterfactuals using data from countries other than France. We find that the 35-h workweek regulation reduced France’s annual unemployment rate by 1.58% and raised the real GDP by 1.36% from 2000 to 2007.
We thank the anonymous referee for pointing out the importance to study both the first-order and second-order effects of RWT.
The main reason that we use unemployment rates rather than employment rates is because quarterly unemployment rate data are available from 1991:Q1 to 2007Q4, while only annual employment data are available from 1983 to 2007, which gives us a smaller sample.
Okun’s Law says there is a negative relationship between unemployment and real output, see e.g., Okun (1962).
Of course there are idiosyncratic factors driving the unemployment and the GDP growth of different countries too, but as long as they are not systematically correlated with the RWT policy in France, our method will still work.
See e.g., the discussion in Hsiao, Steve Ching, and Ki Wan (2012).
This also facilitates our analysis of Okun’s Law, as there is a debate on whether Okun’s Law still holds during the Great Recession, e.g., Cazes, Verick, and Al-Hussami (2011) and Ball, Leigh, and Loungani (2013).
Here we follow the way of Okun (1962) to estimate Okun’s coefficient instead of the method of Prachowny (1993), Freeman (2001) and Moosa (1997), as the latter regresses the GDP growth rate on the change of unemployment rate and needs to control for changes in capital, capacity utilization and hours worked etc.
We got similar results when using data before 1997 as the pre-treatment period. We do not extend the analysis further back, as we want to have more than 20 observations for the data fitting process.
We would like to thank the anonymous referee for the helpful comments that greatly improved the paper. We also thank Etienne Wasmer for his comments on the early version of the paper. Research is funded by Ministry of Education of China, 11XJC790002 and 211 Project for SWUFE.
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