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Listening to workers: The overtime versus hiring dilemma

  • Singer, Marcos
  • Obach, Juan José

To reach a certain production level, firms sometimes allow overtime and/or adjust the number of their personnel. Under some circumstances, workers can decide to work overtime to gain additional compensation, even though the firm might not need that time. This type of overtime exists because of an information asymmetry that favors workers: they know better than management the everyday routines, the temporary bottlenecks, and the malfunctions in the workplace. This study models this situation as an infinitely repeated game. In each stage-game the workers decide whether to work overtime, and the firm decides whether to adjust the amount of personnel. The game characterizes the conditions of the Nash equilibriums, some of which might lead to collaborative communication between the workers and the firm. The study empirically tests two propositions with data from a Chilean smelting plant. The results identify under which circumstances the firm should “listen” to the workers (i.e., take into account how much overtime they incur) when making personnel decisions.

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Article provided by Elsevier in its journal Journal of Business Research.

Volume (Year): 66 (2013)
Issue (Month): 10 ()
Pages: 1771-1779

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Handle: RePEc:eee:jbrese:v:66:y:2013:i:10:p:1771-1779
Contact details of provider: Web page: http://www.elsevier.com/locate/jbusres

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  1. Earl F. Lundgren & V. Schneider, 1971. "A Marginal Cost Model for the Hiring-Overtime Decision," Management Science, INFORMS, vol. 17(6), pages B399-B405, February.
  2. Charles C. Holt & Franco Modigliani & Herbert A. Simon, 1955. "A Linear Decision Rule for Production and Employment Scheduling," Management Science, INFORMS, vol. 2(1), pages 1-30, October.
  3. Dominique Goux & Eric Maurin & Marianne Pauchet, 1999. "Fixed-term Contracts and the Dynamics of Labour Demand," Working Papers 99-02, Centre de Recherche en Economie et Statistique.
  4. Hart, Robert A & Ma, Yue, 2008. "Wage-Hours Contracts, Overtime Working and Premium Pay," Stirling Economics Discussion Papers 2008-04, University of Stirling, Division of Economics.
  5. 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.
  6. Abowd, John M. & Kramarz, Francis, 2003. "The costs of hiring and separations," Labour Economics, Elsevier, vol. 10(5), pages 499-530, October.
  7. Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302.
  8. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  9. Addison, John T. & Bellmann, Lutz & Schank, Thorsten & Teixeira, Paulino, 2005. "The Demand for Labor: An Analysis Using Matched Employer-Employee Data from the German LIAB. Will the High Unskilled Worker Own-Wage Elasticity Please Stand Up?," IZA Discussion Papers 1780, Institute for the Study of Labor (IZA).
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