This chapter examines the theoretical underpinnings of the effects of work-sharing on employment. The analysis proceeds as follows: Section 4.2 is devoted to an analysis of labour demand when the firm chooses the number of jobs and hours. The interactions between employers' choice and workers' choice over hours, employment, and wages are studied in Section 4.3. Finally Section 4.4 provides some concluding comments. It is shown that compulsory reductions in standard hours can increase employment only in very special circumstances that are very rarely met in the real world. Cross-country differences in working time can be related to differences in institutions and cultures. Although imperfect competition may imply that state regulation of hours is required, this does not mean that systematic reductions in standard hours can improve employment or welfare.
Keywords: work-sharing, labour demand, working time, wages, compulsory reductions