Labor Supply and Establishment Size

2022-05-27

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