Labor Supply within the Firm
52 Pages Posted: 3 Aug 2020
Date Written: July, 2020
There is substantial variation in working time even within employer-employee matches, and yet estimates of the Frisch elasticity of labor supply can be near zero. This paper proposes a tractable theory of earnings and working time to interpret these observations. Production complementarities attenuate the response of working time to idiosyncratic, or worker-specific, shocks, but firm-wide shocks are mediated by preference parameters. The model can be identified using firm-worker matched data, revealing a Frisch elasticity of around 0.5. A quasi-experimental approach that mimics the design of earlier studies by exploiting only idiosyncratic variation would find an elasticity less than half this.
Keywords: Intensive margin, production complementarities, bargaining, employee-employer data
JEL Classification: J22, J23, J31
Suggested Citation: Suggested Citation