Frisch elasticities in a model of indivisible labor supply with endogenous workweek length

In this paper, I provide an extension of the classical indivisible labor supply model where a large macro Frisch elasticity is reconciled with a small micro counterpart. Households take as given state-dependent hours per worker - shaped by a nonlinear mapping from hours worked to labor services and employment frictions - and make intertemporal labor supply decisions. In the standard indivisible labor supply model, aggregate fluctuations are independent of the individual preference parameter that governs the intensive-margin elasticity. In my model, however, they are connected through the extensive margin whose elasticity is empirically reasonable and is shaped by the individual preference parameter.