Can overtime premium flexibility promote employment? Firm- and worker-level evidence from a labour law reform

Pedro Martins

No 72, Working Papers from Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research

Abstract: In 2012, in the midst of a recession, a labour law reform in Portugal allowed firms to reduce the overtime premium paid to their workers by 50% or more. Until then, overtime premiums were set by law at a relatively high level and could not be cut unilaterally. We analyse matched employer-employee panel data, including worker-level base and overtime hours and pay, to shed light on the effects of the resulting greater flexibility in overtime pay setting. We find that half of the firms using overtime in 2011 did reduce their overtime premiums in a manner consistent with the reform, in particular those firms making greater use of overtime and paying higher premiums. Moreover, using difference-in-differences matching and a long list of covariates, we find that those firms that cut overtime premiums exhibit significant relative increases in overtime usage, employment and sales following the reform. Overall, our results highlight the important but not exclusive role of legal restrictions behind downward nominal pay rigidity. Our findings also suggest a significant potential of overtime pay flexibility to promote employment, even during a downturn.

Keywords: Working time; wage rigidity; employment resilience; labour reforms (search for similar items in EconPapers)
JEL-codes: J22 J23 J38 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-eur, nep-hrm and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Can Overtime Premium Flexibility Promote Employment? Firm- and Worker-Level Evidence from a Labour Law Reform (2016)
Working Paper: Can overtime premium flexibility promote employment? Firm-and worker-level evidence from a labour law reform (2016)
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