White Collar Exemption: Panacea for long work hours and low earnings?
Kong Joo Shin and
Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)
White collar exemption, an exemption rule for an overtime pay (OP) regulation, has emerged as a regulatory instrument to ameliorate two well-known features of full-time employees in Japan: long work hours and low earnings per hour of labor. Using a large cross-section sample of full-time employees in Japan, we empirically investigate the potential outcomes of the exemption rule. We use Rosen's model of labor markets to derive two testable hypotheses: relative to a more traditional OP-exempt labor contract, the exemption rule induces (1) more variability in work hours, but not necessarily shorter hours on average and (2) lower equilibrium wages. For identification, we combine a set of control strategies with stratified matching. To identify comparable subsamples, we exploit the fact that the likelihood of the OP-exempt status increases with firm size and population density even after conditioning on a number of job and household characteristics. The empirical results support our predictions. As with earlier studies, the OP-exempt status itself significantly increases both work hours and wages relative to the OP-regulated status. Yet, the exemption rule reduces both work hours and wages relative to the traditional OP-exempt contract although the differences are not statistically significant.
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