Abstract
While there is a long-term decline in average working hours, in the cross-section hours have gone up for high-wage workers. This rise in hours inequality coincides with the well-documented increase in wage inequality. To jointly explain these facts, I propose a matching model of the labor market in which hours worked are endogenous. Due to the income effect, average hours decline. Yet, technological change as measured by the complementarities between hours and ability can amplify or dampen sorting and inequality, depending on the strength of the income effect relative to the complementarities in production. I estimate the model using US data to quantitatively analyze the impact of hours-biased technological change on income inequality. I find that the rising returns to long hours for skilled workers explains one quarter of the rise in wage inequality, and accounts for the entire increase in the hours-wage correlation.