DP17311 Are Working Hours Complements in Production?

Author(s): Lin Shao, Faisal Sohail, Emircan Yurdagul
Publication Date: May 2022
Keyword(s): complementarities, coordination, Flexibility, Labor Supply, Production, Wages
JEL(s): E23, J22, J23, J31
Programme Areas: Labour Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17311

This paper uses Canadian employer-employee data to show that working hours are gross complements in production rather than perfect substitutes, as typically assumed. We exploit within-establishment and -individual variation in hours and wages to document novel evidence consistent with complementarities in hours worked. Next, we estimate an elasticity of substitution in working hours of 0.69 in the aggregate and between 0.52 and 1.04 across industries. We validate our estimates by showing that industries with higher elasticities exhibit greater hours flexibility. Our findings have important implications for research on labor supply and the efficacy of policies that aim to influence it.