How would you calculate the economic value of overtime?

The second of the two methods you outlined gives indeed the economic value for the worker.

Together the two methods determine the “goal posts” of how overtime pay is determined for workers (sometimes legislation comes into play where overtime must be a minimum of 1.x times regular time pay). The final determination of the exact amount takes in to account the economic value that overtime creates for the employer. That is usually estimated by understanding the incremental profitability (vs. Profitability of regular hours) these marginal hours of work generate.

hope it helps,

andrea

Hi Lorenzo,

I studied behavioral economics in college, so this is right up my alley. There isn't a right or wrong answer for this question- it entirely depends on how much you value an hour of time.

Here is another way to think about it- how much would you pay to get work an hour less each day?

Josh