Firms tend to pay workers too little per hour, but put them to work for too many hours, according to a new European Central Bank working paper, which proposes fiscal and monetary policy changes to combat these effects.

In Employment, hours and optimal monetary policy, Maarten Dossche, Vivien Lewis and Céline Poilly write that imperfect product market competition and search frictions reduce steady state hours per worker below the efficient level.

The low hourly wage means marginal costs are not