The Labor Market Effects of Expanding Overtime Coverage

This paper studies the employment and income effects of a federal proposal in 2016 to expand overtime coverage to additionally cover salaried workers earning between $455 and $913 per week ($23,660 and $47,476 per annum). Although the policy was unexpectedly nullified a week before its proposed effective date, using detailed administrative payroll data covering one-sixth of the U.S. workforce, I find clear evidence that firms nevertheless responded to the policy by bunching workers' earnings at the new $913 exemption threshold. On average, the base salary of directly affected workers who remain employed increased by 1.4%. Meanwhile, for every hundred workers who would have gained coverage under the policy, 10 jobs were reclassified from salaried to hourly. Preliminary analysis also suggests that there may have been negative employment effects. Examining the distribution of these margins of adjustments, I find that the positive income effect accrued entirely to workers who were bunched at the $913 threshold but would otherwise have earned between $720 and $913 per week, whereas the reclassification and negative employment effects were spread across jobs paying within the entire range of newly covered base salaries.