Working time and the impact of policy institutions: Reforming the overtime hours law and regulation

This paper analyzes implications for worker well-being if legislation in the U.S. Congress is passed permitting employers and non-supervisory employees who agree to substitute future compensatory time off in lieu of premium pay for overtime work, calculated over an 80-hour two-week standard. The impact on worker welfare is predicted applying augmented worker utility and employer demand for hours functions. Plausible inter-temporal scenarios suggest that unless workers gain more control over the timing of their overtime and comp time hours, they are likely to experience a net loss in welfare. This will occur to the extent employers use the new overtime regulation to vary work hours and schedules more closely with fluctuations in output demand as opposed to better customizing work hours to fit workers’ needs to balance work with competing demands on their time, that is, adopting a short rather than longer-run time horizon regarding the restraint of labor costs. Alternative policies are more likely to raise welfare.