Effort and hours over the business cycle

Despite the importance of work effort very little is known about its cyclical behavior. While models with labor hoarding predict a pro-cyclical effort, other models reach an opposite conclusion and recent contributions emphasize the increase of workers’ effort in the US economy during the Great recession. By using high-quality, firm-level data, we obtain an estimate of change in labor effort from a dynamic cost minimization set-up and provide some evidence that the relationship between effort and hours can be non monotonic. We find that, below a certain number of hours per employee, the marginal hour is worked with an increasing hourly effort. During expansions, however, if a critical level of hours per employee is reached, then every additional hour is worked with decreasing effort, arguably due to physical and mental fatigue from long hours.