Labor Supply Within the Firm
Abstract: 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.
File(s): File format is text/html https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2020/wp20-27.pdf
Provider: Federal Reserve Bank of Philadelphia
Part of Series: Working Papers
Publication Date: 2020-07-17