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Wage-Hours Contracts, Overtime Working and Premium Pay

Author

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  • Hart, Robert A.

    () (University of Stirling)

  • Ma, Yue

    () (City University of Hong Kong)

Abstract

This paper offers a contract-based theory to explain the determination of standard hours, overtime hours and overtime premium pay. We expand on the wage contract literature that emphasises the role of firm-specific human capital and that explores problems of contract efficiency in the face of information asymmetries between the firm and the worker. We first explore a simple wage-hours contract without overtime and show that incorporating hours into the contract may itself produce efficiency gains. We then show how the introduction of overtime hours, remunerated at premium rates, can further improve contract efficiency. Our modelling outcomes in respect of the relationship between the overtime premium and the standard wage rate relate closely to earlier developments in hedonic wage theory. Throughout, we emphasise the intuitive reasoning behind the theory and we also supply relevant empirical evidence. Mathematical derivations are provided in an appendix.

Suggested Citation

  • Hart, Robert A. & Ma, Yue, 2008. "Wage-Hours Contracts, Overtime Working and Premium Pay," IZA Discussion Papers 3797, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp3797
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    References listed on IDEAS

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    6. David N. F. Bell & Robert A. Hart, 2003. "Wages, Hours, and Overtime Premia: Evidence from the British Labor Market," ILR Review, Cornell University, ILR School, vol. 56(3), pages 470-480, April.
    7. 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.
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    12. Malcomson, James M., 1999. "Individual employment contracts," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 35, pages 2291-2372, Elsevier.
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    Cited by:

    1. Hart, Robert A & Ma, Yue, 2013. "Overtime Working and Contract Efficiency," SIRE Discussion Papers 2013-121, Scottish Institute for Research in Economics (SIRE).
    2. Angelina Keil & Thomas Leoni & Konrad Wolfgang Kallus & Kerstin Gaisbachgrabner, 2011. "Folgekosten langer Arbeitszeiten. Kommentierter Literaturüberblick," WIFO Studies, WIFO, number 42411, December.
    3. Bell, David N.F. & Hart, Robert A., 2010. "Retire Later or Work Harder?," IZA Discussion Papers 4720, Institute of Labor Economics (IZA).
    4. Singer, Marcos & Obach, Juan José, 2013. "Listening to workers: The overtime versus hiring dilemma," Journal of Business Research, Elsevier, vol. 66(10), pages 1771-1779.
    5. Giorgio d'Agostino & Michele Raitano & Margherita Scarlato, 2019. "Job mobility and heterogeneous returns to apprenticeship training in Italy," Working Papers 0043, ASTRIL - Associazione Studi e Ricerche Interdisciplinari sul Lavoro.
    6. Bell, David N.F. & Hart, Robert A., 2019. "The Decline of Overtime Working in Britain," IZA Discussion Papers 12651, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    asymmetric information; specific human capital; premium pay; overtime; wage-hours contracts;
    All these keywords.

    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

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