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Overtime pay premiums in a unionized oligopoly




This paper studies how a high overtime wage rate and a low labor stock may be used as commitment devices by price-setting firms. We show that high overtime pay premiums may both decrease and increase equilibrium employment. If an employment-oriented union or the firm itself sets the overtime wage, then the overtime wage premium will be high enough to ensure that no overtime is used in equilibrium. If the overtime wage is set by a sufficiently wage-oriented union, however, overtime will be used in equilibrium, and employment is substantially lower. Thus the authorities may be able to increase employment if it can make a union act in a less wage-oriented manner. We show that this can be done by setting a minimum overtime pay premium. Minimum wage regulation could have the opposite effect.

Suggested Citation

  • Meland, Frode, 2002. "Overtime pay premiums in a unionized oligopoly," Working Papers in Economics 22/02, University of Bergen, Department of Economics.
  • Handle: RePEc:hhs:bergec:2002_022

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    References listed on IDEAS

    1. Bauer, Thomas & Zimmermann, Klaus F, 1999. "Overtime Work and Overtime Compensation in Germany," Scottish Journal of Political Economy, Scottish Economic Society, vol. 46(4), pages 419-436, September.
    2. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
    3. Trejo, Stephen J, 1991. "The Effects of Overtime Pay Regulation on Worker Compensation," American Economic Review, American Economic Association, vol. 81(4), pages 719-740, September.
    4. Daniel S. Hamermesh & Stephen J. Trejo, 2000. "The Demand for Hours of Labor: Direct Evidence from California," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 38-47, February.
    5. King, Stephen P., 1997. "Oligopoly and overtime," Labour Economics, Elsevier, vol. 4(2), pages 149-165, June.
    6. Ehrenberg, Ronald G, 1970. "Absenteeism and the Overtime Decision," American Economic Review, American Economic Association, vol. 60(3), pages 352-357, June.
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    More about this item


    Overtime; Bertrand competition; unionization; regulation;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets


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