Overtime Reductions - Negligible Employment Effects

Abstract

One of the central bones of contention in the current 'Alliance for Jobs' negotiations is the reduction of overtime and its potential employment effects. While the unions see overtime reductions as a possible means to increase employment, employers are sceptical about the idea, because they fear constraints on their flexibility in the use of labour. Around 1.8 billion paid overtime hours were worked by German employees in 1998, while the average for the period 1991 to 1998 was almost 1.9 billion (Institute for Employment Research IAB). This study investigates, on the one hand, whether the potential employment effects of between 400 000 and 900 000 jobs cited in the political debate can really be expected if overtime is reduced; on the other hand, it investigates the effects that a reduction of paid overtime would have on personal income distribution in western and eastern Germany. The study is based on data from the Socio-Economic Panel (SOEP), a representative longitudinal survey which provides comprehensive information on overtime worked and types of compensation over time. The analysis is based on data from the years 1990 to 1997 and focuses - in order to allow comparison with other studies - on dependent full-time employees in the private sector.