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Title:Why Do Firms Pay an Overtime Premium? PDF Logo
Authors:Hart, Robert A.
Ma, Yue
Issue Date:2000
Series/Report no.:IZA Discussion paper series 163
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.
Subjects:Overtime premium
human capital
asymmetric information
mandatory overtime rules
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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