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Can Overtime Premium Flexibility Promote Employment? Firm- and Worker-Level Evidence from a Labour Law Reform

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  • Martins, Pedro S.

    () (Queen Mary, University of London)

Abstract

In 2012, in the midst of a recession, a labour law reform in Portugal allowed firms to reduce the overtime premium paid to their workers by 50% or more. Until then, overtime premiums were set by law at a relatively high level and could not be cut unilaterally. We analyse matched employer-employee panel data, including worker-level base and overtime hours and pay, to shed light on the effects of the resulting greater flexibility in overtime pay setting. We find that half of the firms using overtime in 2011 did reduce their overtime premiums in a manner consistent with the reform, in particular those firms making greater use of overtime and paying higher premiums. Moreover, using difference-in-differences matching and a long list of covariates, we find that those firms that cut overtime premiums exhibit significant relative increases in overtime usage, employment and sales following the reform. Overall, our results highlight the important but not exclusive role of legal restrictions behind downward nominal pay rigidity. Our findings also suggest a significant potential of overtime pay flexibility to promote employment, even during a downturn.

Suggested Citation

  • Martins, Pedro S., 2016. "Can Overtime Premium Flexibility Promote Employment? Firm- and Worker-Level Evidence from a Labour Law Reform," IZA Discussion Papers 10205, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp10205
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    Cited by:

    1. Pedro S. Martins, 2016. "The third worker: Assessing the trade-off between employees and contractors," Working Papers 75, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    2. Martins, Pedro S., 2016. "Should the Maximum Duration of Fixed-Term Contracts Increase in Recessions? Evidence from a Law Reform," IZA Discussion Papers 10206, Institute of Labor Economics (IZA).
    3. ABDALLAH Jaber, 2020. "Research On Determining Personnel Needs Based On Labour Productivity. A Literature Review Approach," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 72(1), pages 13-24, April.
    4. Pedro S. Martins, 2016. "Employment Resilience through Services Exports? Evidence from Matched Employer-Employee Data," Working Papers 79, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    5. Pedro S. Martins, 2016. "Do wages increase when severance pay drops? Not in recessions," Working Papers 77, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
    6. Sagyndykova, Galiya & Oaxaca, Ronald L., 2019. "Raising the Overtime Premium and Reducing the Standard Workweek: Short-Run Impacts on U.S. Manufacturing," IZA Discussion Papers 12557, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    working time; wage rigidity; employment resilience; labour reforms;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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