Are working hours complements in production?

Abstract

This paper studies the degree of complementarity in working hours among coworkers in production. Using matched employer-employee data, we first present facts on the within-establishment relationship between wages and hours worked that are consistent with the presence of complementarities in working hours. Next, we estimate the elasticity of substitution in working hours and find it to be 0.69 in the aggregate and between 0.52 and 1.03 across industries. We validate our elasticity estimates by showing that industries with higher elasticities exhibit greater flexibility in hours. Our results suggest that working hours are gross complements in production rather than perfect substitutes, as is typically assumed. An accounting exercise using our model estimations suggests that hours-wage penalties, due to complementarities in hours, can explain 5 to 30 percent of the gender wage gap over the life-cycle.