Hours and Wages
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.
We thank the editors and three anonymous referees, seminar/conference participants at ASU, the Richmond Fed, Atlanta Fed, St. Louis Fed, Minneapolis Fed, McGill University, Goethe University, University of Delaware, the Bank of Canada, UCL, EIEF, USC, NYU Stern, Chicago, Carlos III, University of Mannheim, LMU, William and Mary, the 2018 SF Fed Micro Macro Labor Conference, CASEE Conference on Labor Markets, the 2019 Southern Economics Association, the 2019 SED, and the 2020 Barcelona GSE Summer Forum for helpful comments and suggestions. We thank Gary Hansen, John Kennan, Derek Neal, Josep Pijoan-Mas and Aysegul Sahin, for comments on an earlier version. We would like to thank Spencer Perry, Siyu Shi, and especially Minju Jeong for outstanding research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
I have received financial support in excess of $10,000 over the last three years from the Federal Reserve Bank of Minneapolis, the Federal Reserve Bank of Atlanta and the World Bank.