Time-and-a-Half: The Effect of Overtime on Work Schedules in the Retail Trade Industry

Abstract

The economy is almost six years removed from the worst recession since the Great Depression. While the unemployment rate is near its pre-recession level, other economic indicators denote a labor market performing well below its potential. To help address the lingering effects of the recession, the Obama Administration has proposed extending overtime coverage to more workers. This paper discusses the effect of an overtime policy on the labor market in the context of two competing theoretical models. One model predicts that the implementation of an overtime premium decreases the likelihood of overtime work; the other predicts no change in the labor market. This paper tests these models empirically by analyzing the expansion of overtime coverage to restaurant workers in 1974. Specifically, this paper presents three analyses of data from the May Extracts of the Current Population Survey comparing restaurant workers with other workers in the retail trade industry. The results suggest that expansion of overtime coverage was associated with a significant reduction in the probability of overtime work but the response was delayed and became more pronounced one-year after full implementation of the policy.