DP17068 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.
