The Short-Run Employment Decision and Overtime Behavior in U.S. Industry, 1966.

A rational manpower policy must seek to create jobs as well as to provide training for unemployed workers. The creation of new jobs has been hindered, however, by the observed tendency of employers to substitute overtime hours for additional employees, even while substantial unemployment exists. Although a large proportion of overtime hours is due to disequilibrium phenomena such as seasonal demand or rush orders, there may exist a substantial amount of overtime which is regularly scheduled by employers for rational economic reasons. In particular, there are substantial supplementary compensation costs per man which are quasi-fixed in the sense of being independent of the exact number of hours per week that each employee works. These include employers' costs for such items as paid vacations and holidays, private welfare and insurance plans, and many legally required insurance payments. The higher these costs relative to the overtime wage rate, the more likely that employers will substitute overtime for additional employment. (Author/BH)