Why Do Firms Pay an Overtime Premium?

37 Pages Posted: 10 Nov 2003

See all articles by Robert A. Hart

Robert A. Hart

University of Stirling - Department of Economics; Institute for the Study of Labor (IZA)

Yue Ma

City University of Hong Kong (CityU) - Department of Economics & Finance

Date Written: November 2000

Abstract

We develop a rationale for the payment by firms of a wage premium on marginal, or overtime, weekly hours. We examine wage-hours contracts within the framework of a two-period specific human capital model with asymmetric information. The wage premium serves to achieve contract efficiency. For those weekly hours for which a premium is paid, worker compensation exceeds the value of marginal product. There is an optimal automatic compensatory differential rule between straight-time wages and the premium, and this provides new theoretical insights into recent empirical work in this area. Implications of imposing mandatory rules for premium pay and hours of work are also assessed.

Keywords: Overtime premium, human capital, asymmetric information, mandatory overtime rules

JEL Classification: J41, J33

Suggested Citation

Hart, Robert A. and Ma, Yue, Why Do Firms Pay an Overtime Premium? (November 2000). Available at SSRN: https://ssrn.com/abstract=250101 or http://dx.doi.org/10.2139/ssrn.250101

Robert A. Hart (Contact Author)

University of Stirling - Department of Economics ( email )

Stirling, Scotland FK9 4LA
United Kingdom
+44 1786 467 471 (Phone)
+44 1786 467 469 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Yue Ma

City University of Hong Kong (CityU) - Department of Economics & Finance ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

HOME PAGE: http://www.cb.cityu.edu.hk/staff/yuema24

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
97
Abstract Views
1,307
rank
365,343
PlumX Metrics