Straight-time and Overtime: A Sequential-Lottery Approach

This note explores the problem of aggregation with non-convex labor supply decisions in an economy with both straight time and overtime. In contrast to Hansen and Sargent (1988), the paper models this as a sequential decision. Instead of changing from one to infinity, with a sequential non-convexity, the aggregate elasticity of labor supply for overtime work is a function of overall participation rate, and the aggregate elasticity of labor supply for full-time work depends on the share of workers doing overtime.