Working Paper: NBER ID: w26722
Authors: Alexander Bick; Adam Blandin; Richard Rogerson
Abstract: We document two robust features of the cross-sectional distribution of usual weekly hours and hourly wages. First, usual weekly hours are heavily concentrated around 40 hours, while at the same time a substantial share of total hours come from individuals who work more than 50 hours. Second, mean hourly wages are non-monotonic across the usual hours distribution, with a peak at 50 hours. We develop and estimate a model of labor supply to account for these features. The novel feature of our model is that earnings are non-linear in hours, with the extent of nonlinearity varying over the hours distribution. Our estimates imply significant wage penalties for individuals that deviate from 40 hours in either direction, leading to a large mass of individuals that work 40 hours and are not very responsive to shocks. This has important implications for the role of labor supply as a mechanism for self-insurance in a standard heterogeneous agent-incomplete markets model and for empirical strategies designed to estimate labor supply parameters.
Keywords: Labor Supply; Wages; Hours Worked; Nonlinear Earnings
JEL Codes: E24; J22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| usual weekly hours concentrated around 40 hours (J22) | significant wage penalties for individuals deviating from this norm (J31) |
| working 50 hours (J22) | wage penalty of almost 20% compared to those working 40 hours (J38) |
| working 65 hours (J38) | hourly wages about the same as for those working 35 hours (J38) |
| selection on unobservables (C52) | influences the observed wage-hours relationship (J38) |
| nonmonotonic relationship (C29) | robust feature across various demographics and datasets (C52) |