A key assumption in the majority of labor supply theory is that workers can choose any
number of working hours at a given wage. This implies that employers are indi®erent to the
number of hours their employees work. However, several studies have criticized this assumption
using both theoretical arguments and empirical evidence. Several explanations can be given
as to why the number of working hours is not only the choice of the worker, but may also
be in°uenced by the employer. First, the ¯rm may face ¯xed costs of employment, or costs
associated with the coordination of activities of workers who work di®erent numbers of hours
(see Hamermesh (1987) for an overview), and as a result the worker may face a lower bound
on weekly working hours. Second, hours constraints can also arise as features of lifetime em-
ployment contracts, in which the wage and the marginal productivity of the worker diverge.
The existence of such contracts can be explained by implicit contract-insurance models, agency
models and ¯rm-speci¯c human capital models (Kahn and Lang, 1992, 1995). Since wages
in implicit contracts are ¯xed to insure workers against demand °uctuations,