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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, 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.

Suggested Citation

  • Michele Battisti & Ryan Michaels & Choonsung Park, 2020. "Labor Supply Within the Firm," Working Papers 20-27, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:88449
    DOI: 10.21799/frbp.wp.2020.27
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    Cited by:

    1. Labanca, Claudio & Pozzoli, Dario, 2018. "Coordination of Hours within the Firm," Working Papers 7-2018, Copenhagen Business School, Department of Economics.

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    More about this item

    Keywords

    Intensive margin; production complementarities; bargaining; employee-employer data;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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