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Labor Supply within the Firm

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  • Michele Battisti
  • Ryan Michaels
  • Choonsung Park

Abstract

There is substantial variation in working time even within employer-employee matches, 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 exploits only idiosyncratic variation would find an elasticity less than half this.

Suggested Citation

  • Michele Battisti & Ryan Michaels & Choonsung Park, 2024. "Labor Supply within the Firm," Journal of Labor Economics, University of Chicago Press, vol. 42(2), pages 511-548.
    • Handle: RePEc:ucp:jlabec:doi:10.1086/723519
    DOI: 10.1086/723519
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