Hours constraints and wage differentials across firms

Although constraints on hours worked at the firm-level are viewed as an important determinant of firm wages, little direct evidence exists to support this view. In this paper, we use linked employer-employee data on hours worked in Denmark to measure hours constraints and to investigate how these constraints relate to firm wages. We show that firms with stricter constraints pay higher firm-specific wages and that these premiums are concentrated in more productive firms. Starting from these findings we discuss a framework in which hours constraints are motivated by the productivity gains derived from having a more cooperative production process, leading more productive firms to constrain hours and to pay compensating wage differentials.

Claudio Labanca is lecturer in the Department of Economics. He joined the department in 2017 after completing his Ph.D. in Economics at the University of California, San Diego. His research falls at the intersection of labor economics and public economics and it covers a variety of topics, including wage and productivity differentials across firms, the effects of taxation on the supply of labor and the impact of migration on local labor markets. In his work he pays particular attention to the role played by the interaction between worker and firm behavior in shaping demand and supply of labor, wages and productivity. To estimate these interactions, he applies the latest econometric techniques to detailed matched employer-employee data.

This paper is co-authored with Dario Pozzoli, Copenhagen Business School, Denmark.