Dynamic Labor Supply in Organizational Equilibrium

This paper uses 10 years of public records documenting the almost free trade of work within a government organization. I estimate a dynamic equilibrium model where workers build a portfolio of shifts that determines their hours beyond the standard work week, considering both their static labor-leisure trade-off as well as dynamic considerations to save and consume. Each workers’ hours beyond their standard work week is determined by frictional trading with coworkers. The model yields worker-specific structural preferences for working hours, that allow the computation of individual labor supply elasticities under the current organizational constraints as well as counterfactual labor supply elasticities that would arise if a worker could continuously and freely choose their hours at any market wage. The curvature of each worker’s utility function with respect to hours is identified by variation in the initial assignment of additional work, which is determined by a quasi-exogenous rotating list. Sometimes workers are endowed with a 16 hour shift and sometimes a 1 hour shift, and the data record whether the shift is traded away. I compare my estimates to those in the literature, and argue that the microeconomic labor supply elasticities reported in the literature likely incorporate significant organizational frictions. The organization if racially and gender diverse, and I show how worker preferences and elasticities vary across demographic groups. I conclude by showing how the preferences of an organization’s workers combine with internal institutions to amplify the reduced-form labor supply responses of some workers and dampen others.