Too Many Managers: The Strategic Use of Titles to Avoid Overtime Payments

We find widespread evidence of firms avoiding overtime payments through the strategic use of “managerial” titles. Exploiting a federal mandate in the Fair Labor Standards Act (FLSA), we find an almost five-fold increase in managerial title usage just over the regulatory threshold to avoid overtime payment, including suspect managerial listings such as “Directors of First Impression,” whose jobs are otherwise equivalent (in this case, to a front desk clerk). Overtime avoidance is more pronounced when firms have stronger bargaining power and employees have weaker rights. Moreover, firms utilize this more when they face financial constraints, as well as when their labor has weaker outside options. Lastly, firms make more use of overtime avoidance tactics in occupations with more volatility in labor demand and when there is more uncertainty in labor scheduling. We find no evidence of long-term employees benefits of these fake titles in terms of future wages or future career progression. In sum, our results are strongly consistent with firms using this flexible tool to their advantage where – and when – the tradeoff is most in their favor to do so. Our prediction dynamics align with litigation realizations and actions taken by the Department of Labor for workplace violations around wage theft precisely to this end. Moreover, the wages avoided are substantial - we estimate that firms avoid roughly 13.5% in compensation costs for each strategic “manager” hired.