“Hard workers” and labor restrictions

This paper analyzes the effects of changes in relative bargaining power within two-member households participating in labor and product markets. The most striking effects occur when household members differ in individual preferences and enjoy positive leisure-dependent externalities. For instance, a global change in relative bargaining power where the hardworking member becomes more influential in each working class household can render the working class worse off. Moreover, we show that restrictions on labor supply can prevent hard workers from exerting too much pressure on their hedonistic partners to work more. A restriction on individual labor supply improves welfare of the working class population, which adds a new twist to the literature on why working hours are limited in many European countries.