Resource title

Why Do Firms Pay an Overtime Premium?

Resource image

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Resource description

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.

Resource author

Robert A. Hart, Yue Ma

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/21005

Resource license

Adapt according to the presented license agreement and reference the original author.