Why Do Firms Pay an Overtime Premium?
AbstractThis paper develops a two-period specific human capital model in which the bargaining parties seek to achieve optimal wage-hours contracts in the face of asymmetrically held information. With a single wage rate, we show that the problem of inefficient separations is so severe that, effectively, no specific training would take place. A wage premium on weekly overtime hours serves to reduce the effects of asymmetric information although it does not completely eliminate inefficiency. For those weekly hours for which a premium is paid, worker compensation exceeds the value of marginal product. There is an optimal automatic compensatory differential rule represented by an inverse relationship between the contractual wage and the overtime premium. Implications of imposing mandatory rules for premium pay and hours of work, as practiced in the United States, are assessed. The model is found to offer insights into important earlier finding in the literature.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 163.
Length: 38 pages
Date of creation: Jun 2000
Date of revision:
Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Find related papers by JEL classification:
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bell, David N F & Hart, Robert A, 1999.
London School of Economics and Political Science, vol. 66(262), pages 271-90, May.
- Malcomson, J., 1998.
"Individual employment contracts,"
Discussion Paper Series In Economics And Econometrics
9804, Economics Division, School of Social Sciences, University of Southampton.
- Hashimoto, Masanori, 1979. "Bonus Payments, on-the-Job Training, and Lifetime Employment in Japan," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1086-1104, October.
- Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-20, September.
- 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.
- Petri Böckerman, 2002. "Overtime in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 15(1), pages 36-54, Spring.
- Andersson, Frederik & Konrad, Kai A., 2001.
"Globalization and human capital formation,"
Discussion Papers, Research Unit: Market Processes and Governance
FS IV 01-01, Social Science Research Center Berlin (WZB).
- Koch, Susanne, 2001. "Arbeitszeit und Beschäftigung im gesamtwirtschaftlichen Zusammenhang : Arbeitszeitfragen und ihre Behandlung in ökonomischen Modellen: Literaturüberblick und Forschungsperspektiven (Working time an," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 34(1), pages 28-44.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).
If references are entirely missing, you can add them using this form.