[Excerpt] Upon reading the congressional hearing on the Overtime Pay Penalty Act of 1964, one cannot fail to be impressed by the emphasis that management places on absenteeism as a primary cause of overtime. The argument given is basically quite simple: Large firms, it is claimed, attempt to account for absenteeism by hiring standby workers; however because of the stochastic nature of the absentee rate, it is impossible for them to have replacements always available. Hence overtime must be worked by existing employees in order to meet production schedules. One concludes from this argument that the randomness of absenteeism is the cause of overtime. If the absentee rate were known with certainty, then management could take account of it without recourse to additional overtime.
In this note we challenge this conclusion and argue that a rational economic response to a certainty absentee rate involves increasing the amount of overtime worked per man, while the effect on the level of employment is ambiguous. Furthermore we claim that a stochastic absentee rate leads to a larger optimal employment stock and, in at least one special case, on average, to a smaller amount of overtime worked per man than in the certainty absentee rate case. Crucial to our argument is the observation that many of the labor costs which we classify as "fixed" must be paid by the employer even when an employee is absent, but overtime hourly wage payments need not be made to absentees.