Discussion paper

DP17469 Labor Supply and Firm Size

Larger firms exhibit i) longer hours worked, ii) higher wages, and iii) smaller (larger) wage penalties for working long (short) hours. We reconcile these patterns in a general equilibrium model, which features the endogenous interaction of hours, wages, and firm size. In the model, workers willing to work longer hours sort into larger firms that offer a wage premium. Complementarities in hours generate wage penalties that increase with the distance from average firm hours. We use the model to argue the importance of the interaction between hours, wages, and firm size for inequality and firm policy.


Shao, L, F Sohail and E Yurdagul (2022), ‘DP17469 Labor Supply and Firm Size‘, CEPR Discussion Paper No. 17469. CEPR Press, Paris & London. https://cepr.org/publications/dp17469