Labor Supply within the Firm

52 Pages Posted: 3 Aug 2020

See all articles by Michele Battisti

Michele Battisti

University of Glasgow

Ryan Michaels

Federal Reserve Bank of Philadelphia

Choonsung Park

Korea Institute of Finance

Date Written: July, 2020


There is substantial variation in working time even within employer-employee matches, and yet estimates of the Frisch elasticity of labor supply can be near zero. This paper proposes a tractable theory of earnings and working time to interpret these observations. Production complementarities attenuate the response of working time to idiosyncratic, or worker-specific, shocks, but firm-wide shocks are mediated by preference parameters. The model can be identified using firm-worker matched data, revealing a Frisch elasticity of around 0.5. A quasi-experimental approach that mimics the design of earlier studies by exploiting only idiosyncratic variation would find an elasticity less than half this.

Keywords: Intensive margin, production complementarities, bargaining, employee-employer data

JEL Classification: J22, J23, J31

Suggested Citation

Battisti, Michele and Michaels, Ryan and Park, Choonsung, Labor Supply within the Firm (July, 2020). FRB of Philadelphia Working Paper No. 20-27, Available at SSRN: or

Michele Battisti (Contact Author)

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

Ryan Michaels

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Choonsung Park

Korea Institute of Finance

Korea, Republic of (South Korea)

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