Working Paper

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.

Keywords: Intensive margin; production complementarities; bargaining; employeeemployer data.;

JEL Classification: J22; J23; J31;

https://doi.org/10.21799/frbp.wp.2020.27

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Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2020-07-17

Number: 20-27