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.
Original language | English |
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Pages (from-to) | 170-179 |
Number of pages | 10 |
Journal | Labour Economics |
Volume | 17 |
Issue number | 1 |
DOIs | |
Publication status | Published - 1 Jan 2010 |
Funding
sWe thank two referees, Dan Hamermesh, Steve Trejo, seminar participants at the Universities of Hamburg and Mainz as well as the U.K. Education and Employment Economics Group for helpful comments.
Keywords
- Asymmetric information
- Overtime
- Premium pay
- Specific human capital
- Wage-hours contracts