This paper adds to the various reasons for a worker’s supply of overtime hours by focusing on forward-looking
labor supply, and provides an explanation for the empirically proven relationship between overtime and positive
future outcomes. We suggest an internal signaling model, in which a worker signals his value to the employer
by supplying unpaid overtime. The possible benefits from signaling by means of longer hours are promotion and
job retention. We analyze whether overtime, and in particular unpaid overtime, can be an effective signaling
device for a higher value, and derive the conditions for a separating and a pooling equilibrium.
In the empirical part of the analysis, we examine whether overtime has in fact a signaling component.
Variations in collectively bargained hours between industries are exploited, as they imply different
overtime thresholds for workers with the same number of actual hours. Using data from the German Socio-Economic
Panel Study (SOEP) for the years 1993 to 2004, support is found for the signaling hypothesis for
West German workers, whereas negative signaling was found to prevail in East Germany.
Presented by:
Silke Anger (DIW, Berlin)
Date & time:
May 10, 2006 12:00 pm - May 9, 2006 11:00 pm
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