Insurance-markets Equilibrium with Sequential Non-convex Straight-time and Over-time Labor Supply

This note describes the lottery - and insurance-market equilibrium in an economy with non-convex straight-time and overtime employment. In contrast to Hansen and Sargent (1988), the overtime-decision is a sequential one. This requires two separate insurance market to operate, one for straight-time work, and one for overtime. In addition, given that the labor choice for regular and overtime hours is made in succession, the insurance market for overtime needs to open once the insurance market has closed. This segmentation and sequentiality of insurance markets operation is a new result in the literature and a direct consequence of the sequential nature of the overtime labor decision.

BELLMAN'S MODEL - THE KEY TO EFFICIENT USE OF WORKING TIME

The article presents a comparative analysis of cost effectiveness of labor activity with a short and long working day. The authors construct the theoretical model of a representative single labor choice, from which, without loss of generality, it follows that systematic overwork does not lead to an increase in aggregate output in comparison with the normal working regime. As a result from the model, the authors emphasize the recommendation to discourage overwork by strengthening relevant formal and informal institutions, such as a formal set of labor standards and rules and the company's corporate culture.