Treatment Effects in Bunching Designs: The Impact of Mandatory Overtime Pay on Hours

The 1938 Fair Labor Standards Act mandates overtime premium pay for most U.S. workers, but it has proven difficult to assess the policy's impact on the labor market because the rule applies nationally and has varied little over time. I use the extent to which firms bunch workers at the overtime threshold of 40 hours in a week to estimate the rule's effect on hours, drawing on data from individual workers' weekly paychecks. To do so I generalize a popular identification strategy that exploits bunching at kink points in a decision-maker's choice set. Making only nonparametric assumptions about preferences and heterogeneity, I show that the average causal response among bunchers to the policy switch at the kink is partially identified. The bounds indicate a relatively small elasticity of demand for weekly hours, suggesting that the overtime mandate has a discernible but limited impact on hours and employment.