Firm-specific constraints on hours worked have been proposed as an important friction that regulates how the labour supply responds to tax changes. Yet, little evidence exists on the source of these constraints or the magnitude of their effects.

We use novel data detailing hours worked within firms in Denmark to explore one mechanism that leads firms to constrain hours: the need for coordination of hours among coworkers. We first construct a new measure of hours coordination and document the features of coordinated firms. Importantly, we find that the degree of hours coordination among coworkers positively correlates with firm wages and productivity. We then estimate labour supply elasticities using changes to the Danish income tax schedule in 2010, which affected high-wage earners differently. We find evidence of higher labour supply elasticity in firms with lower hours coordination. Furthermore, we find evidence of substantial spillover effects associated with coordination on hours worked by coworkers not directly affected by the reform. We estimate that these spillovers led to a 15% increase of the marginal excess burden from the reform and that they can attenuate the estimated labour supply elasticity by more than 80%.

Claudio Labanca is a lecturer in the Department of Economics at the Monash Business School. He holds a PhD in Economics at the University of California, San Diego. His research falls at the intersection of labour economics and public economics, including wage and productivity differentials across firms, the effects of taxation on the supply of labour and the impact of migration on local labour markets. He pays particular attention to the role played by the interaction between worker and firm behaviour in shaping demand and supply of labour, wages and productivity.

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