The Return to Hours and Workers in U.S. Manufacturing: Evidence on Aggregation Bias

Reliance on overtime or part-time work is contested by organized labor and suggests employers exploit trade-offs between workers and hours. Worker–hour models predict return to hours and workers’ estimates are crucial in evaluating the trade-off between them. This paper uses data that vary by industry to test and reject a common production structure across industries used in prior work; this aggregation is shown to yield an upward bias in return-to-hours estimates. Contrary to prior evidence, the industry-specific return-to-hour estimates are lower than return-to-worker estimates and are generally less than one, suggesting that trade-offs between workers and hours may be cost effective.