Are Working Hours Complements in Production?

Abstract

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.

Keywords: complementarities, coordination, Flexibility, Labor Supply, Production, Wages

JEL Classification: E23, J22, J23, J31