Published online by Cambridge University Press: 22 September 2009
Why do firms pay an overtime premium? Several straightforward reasons spring readily to mind. In the first place, governments may attempt to reduce health and social costs of excessive work demands by imposing high labour costs on firms' marginal daily or weekly hours beyond acceptable norms. Second, in the absence of such intervention, labour unions may require high marginal rates as compensation for the potential adverse effects on their members' welfare. Third, in order to satisfy unanticipated increases in product demand while minimising hiring and firing costs – especially in make-to-order production (see pp. 60–1) – firms may pay a premium to compensate workers for unexpected interruptions of leisure activity.
On more reflection, however, such explanations for the payment of a premium are not altogether satisfactory. Consider, for example, the problem of negative health and social repercussions of working long hours. If we were to tackle the question of why overtime firms paid a premium during the first half of the twentieth century, then it is probable we would think first and foremost in terms of additional pay to compensate for the socially detrimental effects of excessive working hours. At this time, long standard workweeks were typical. For example, in British engineering in the inter-war period (see section 6.3), the standard workweek was 47 hours.