Hours, wages, and multipliers

The quantitative HANK model, incorporating the coordination of hours worked in production, yields an improved empirical fit along two dimensions: a more concentrated steady-state distribution of hours worked and lower marginal propensities to earn (MPEs) with positive but moderate fiscal multipliers for separable preferences. In the model, failing to coordinate work hours with coworkers leads to wage penalties, and labor earnings display decreasing returns to hours. Consequently, households prefer working hours closer to the average and adjust their hours less in response to idiosyncratic shocks than in the standard model. Aggregate shocks increase optimal hours for all employees, and the coordination friction does not bind. The model matches the empirical estimates of the idiosyncratic and aggregate Frisch elasticities.