Essays in Overtime Regulation, Wage Rigidity, and Unemployment Insurance

Abstract

My dissertation empirically investigates the ways that employers and workers respond to government interventions in the labor market. Using these behavioral responses, I test theories in labor economics and estimate key parameters for welfare decisions. Chapter 1 evaluates the impact of overtime coverage on the US labor market. Leveraging high-frequency administrative payroll data, I analyze recent expansions in overtime protection for low-income salaried employees and find evidence inconsistent with two prominent views of the labor market. In contrast to the work-sharing theory of overtime, expansions in coverage led to a net loss, rather than an increase, in employment. Moreover, contrary to the compensating differentials model, firms did not reduce workers’ base salaries to offset the increased labor costs, but instead raised them so that employees are no longer eligible for overtime. Taken together, the estimates of these responses imply a large negative elasticity of employment with respect to wages. Chapter 2 tests for wage rigidity by studying employers' response to the unexpected suspension of a reform that would have granted overtime coverage to salaried employees earning less than $913 per week. Although the policy was nullified, I find that employers nevertheless raised incumbents’ base pay right above the overtime eligibility threshold and this bunching persisted even two years after the policy was terminated. Consistent with downward nominal wage rigidity, employers also did not compress workers’ future wage growth to offset the initial pay increase and continued paying new hires’ salaries at the threshold. Chapter 3, co-authored with David S. Lee, Pauline Leung, Christopher J. O'Leary, and Zhuan Pei, examines the fiscal cost of increasing unemployment insurance benefits. To aid analytical tractability, researchers typically require a simplified model of behavior to estimate the deadweight loss associated with reforms to income transfer programs. In comparison, we employ a complementary "decomposition'' approach that compares the behavioral and mechanical components of a policy's total impact on the government budget to study the deadweight loss of two unemployment insurance policies. Experimental and quasi-experimental estimates using state administrative data show that increasing the weekly benefit is more efficient than reducing the program's implicit earnings tax.