Enhancing Team Productivity through Shorter Working Hours: Evidence from the Great Recession

Author Name Ruo SHANGGUAN (Waseda University) / Jed DEVARO (California State University, East Bay) / OWAN Hideo (Faculty Fellow, RIETI)
Creation Date/NO. May 2021 21-E-040
Research Project Productivity Effect of HRM Policies and Changing Employment System
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When output demand drops during recessions, employers decrease labor inputs by cutting workers and/or hours. If pre-recession hours were excessive, cutting hours might increase labor productivity, given an inverted-U-shaped hours-productivity profile. When total hours decrease in team settings, labor reallocation causes hours to be concentrated among top performers. The adjustment process is examined using single-firm Japanese data on construction design projects. A theoretical model is proposed and calibrated to analyze within-team labor allocation. We find that in response to the decrease in hours resulting from the 2008-2009 global financial crisis: (1) total productivity improves by more than the increase in individual productivity, the labor share becomes more concentrated, and team size decreases; (2) the productivity improvement is greater for larger teams and less productive teams; (3) larger teams exhibit lower average productivity because weaker workers join teams when more hours are needed than the top performers can handle.