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Wage-hours contracts, overtime working and premium pay

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  • Hart, Robert A.
  • Ma, Yue

Abstract

This paper offers a contract-based theory to explain the determination of standard hours, overtime hours and overtime premium pay. We expand on the wage contract literature that emphasises the role of firm-specific human capital and that explores problems of contract efficiency in the face of information asymmetries between the firm and the worker. We first explore a simple wage-hours contract without overtime and show that incorporating hours into the contract may itself produce efficiency gains. We then show how the introduction of overtime hours, remunerated at premium rates, can further improve contract efficiency. Our modelling outcomes in respect of the relationship between the overtime premium and the standard wage rate relate closely to earlier developments in hedonic wage theory. Throughout, we emphasise the intuitive reasoning behind the theory and we also supply relevant empirical evidence. Mathematical derivations are provided in an Appendix.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 17 (2010)
Issue (Month): 1 (January)
Pages: 170-179

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Handle: RePEc:eee:labeco:v:17:y:2010:i:1:p:170-179

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Web page: http://www.elsevier.com/locate/labeco

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Keywords: Wage-hours contracts Overtime Premium pay Specific human capital Asymmetric information;

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References

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  1. Hashimoto, Masanori, 1981. "Firm-Specific Human Capital as a Shared Investment," American Economic Review, American Economic Association, vol. 71(3), pages 475-82, June.
  2. Hart,Robert A., 2004. "The Economics of Overtime Working," Cambridge Books, Cambridge University Press, number 9780521801423, October.
  3. Trejo, Stephen J, 1993. "Overtime Pay, Overtime Hours, and Labor Unions," Journal of Labor Economics, University of Chicago Press, vol. 11(2), pages 253-78, April.
  4. Lorne Carmichael, 1983. "Firm-Specific Human Capital and Promotion Ladders," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 251-258, Spring.
  5. Hutchens, Robert M, 1989. "Seniority, Wages and Productivity: A Turbulent Decade," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 49-64, Fall.
  6. Hall, Robert E & Lazear, Edward P, 1984. "The Excess Sensitivity of Layoffs and Quits to Demand," Journal of Labor Economics, University of Chicago Press, vol. 2(2), pages 233-57, April.
  7. David N. F. Bell & Robert A. Hart, 2003. "Wages, hours, and overtime premia: Evidence from the British labor market," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(3), pages 470-480, April.
  8. Kinoshita, Tomio, 1987. "Working Hours and Hedonic Wages in the Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1262-77, December.
  9. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-20, September.
  10. Trejo, Stephen J, 1991. "The Effects of Overtime Pay Regulation on Worker Compensation," American Economic Review, American Economic Association, vol. 81(4), pages 719-40, September.
  11. Malcomson, James M., 1999. "Individual employment contracts," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 35, pages 2291-2372 Elsevier.
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Cited by:
  1. Singer, Marcos & Obach, Juan José, 2013. "Listening to workers: The overtime versus hiring dilemma," Journal of Business Research, Elsevier, vol. 66(10), pages 1771-1779.
  2. Bell, David N.F. & Hart, Robert A., 2010. "Retire Later or Work Harder?," IZA Discussion Papers 4720, Institute for the Study of Labor (IZA).
  3. Hart, Robert A. & Ma, Yue, 2013. "Overtime Working and Contract Efficiency," IZA Discussion Papers 7560, Institute for the Study of Labor (IZA).

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