The Return to Hours and Workers in U.S. Manufacturing: Evidence on Aggregation Bias

Reliance on overtime or part‐time work is contested by organized labor and suggests employers exploit trade‐offs between workers and hours. Worker‐hour models predict return to hours and workers' estimates are crucial in evaluating the trade‐off between them. This paper uses data that vary by industry to test and reject a common production structure across industries used in prior work; this aggregation is shown to yield an upward bias in return‐to‐hours estimates. Contrary to prior evidence, the industry‐specific return‐to‐hour estimates are lower than return‐to‐worker estimates and are generally less than one, suggesting that trade‐offs between workers and hours may be cost effective.