Wage-Hours Contracts, Overtime Working and Premium Pay

Robert Hart and Yue Ma

No 3797, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper offers a contract-based theory to explain the determination of standard hours, overtime hours and overtime premium pay. We expand on the wage contract literature that emphasises the role of firm-specific human capital and that explores problems of contract efficiency in the face of information asymmetries between the firm and the worker. We first explore a simple wage-hours contract without overtime and show that incorporating hours into the contract may itself produce efficiency gains. We then show how the introduction of overtime hours, remunerated at premium rates, can further improve contract efficiency. Our modelling outcomes in respect of the relationship between the overtime premium and the standard wage rate relate closely to earlier developments in hedonic wage theory. Throughout, we emphasise the intuitive reasoning behind the theory and we also supply relevant empirical evidence. Mathematical derivations are provided in an appendix.

Keywords: asymmetric information; specific human capital; premium pay; overtime; wage-hours contracts (search for similar items in EconPapers)
JEL-codes: J33 J41 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2008-10
New Economics Papers: this item is included in nep-bec, nep-cta and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: Labour Economics, 2010, 17 (1), 170-179

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Related works:
Journal Article: Wage-hours contracts, overtime working and premium pay (2010)
Working Paper: Wage-Hours Contracts, Overtime Working and Premium Pay (2008)
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