A mandated increase in overtime pay is likely to
A) cause employers to reduce overtime hours and convert them into added employment.
B) directly reduce the quasi-fixed costs per worker.
C) lead to a reduction in employment if higher costs cause a large scale effect.
D) lead to a reduction in employment if those who work overtime and those who are unemployed are perfect substitutes.

Question

Quizplus · Accepted Answer

If the mandated increase in overtime pay raises costs significantly, employers may respond by reducing the demand for labor, leading to a decline in employment levels. This effect is particularly likely if there are few substitutes for those who work overtime and those who are unemployed, meaning that employers have limited choices for cutting their labor costs. Choice A is unlikely because employers may not always be able to convert overtime hours into added employment due to factors such as skill requirements and workflow management. Choice B is incorrect because while an increase in overtime pay may reduce fixed costs per worker, it does not necessarily impact quasi-fixed costs, such as rent or equipment. Choice D is not a relevant consideration for this question.

A Mandated Increase in Overtime Pay Is Likely to