Overtime Intercept Constraint Extrapolation

In Simple Words

Imagine trying to draw a line through points on a graph where all the dots for high hours are grouped at the very top edge; by anchoring the starting height of the line based on where all previous lower-hour lines started, researchers can accurately measure the line's upward slope.

Research question

High minimum overtime pay mandates under labor laws force experimental wage offers for full-time work to be high, creating severe statistical extrapolation error when estimating reservation wages for hours beyond standard workweeks.

Participants

N = 250 unemployed job applicants across 80 U.S. metropolitan areas in overtime choices (40 vs 45 and 45 vs 50 hours per week).

Study Design

Logit discrete choice estimation with intercepted parameter constraints derived from linear extrapolation of non-overtime choice intercepts (5 vs 10 through 35 vs 40 hours per week).

Results

Unconstrained logit models yield an imprecisely estimated marginal value of time of $43.10 (s.e. = 15.90) for 40 vs 45 hours, whereas imposing linear intercept constraints reduces the standard error tenfold, yielding a precise MVT of $21.89 (s.e. = 1.70).

Takeaway

Constrain logit choice model intercepts using linear regressions of baseline choice probabilities when extrapolating high-wage discrete choice parameters.

Related findings

• Asymmetric Wealth Effect of Subsidized Index Contracts →Economics (general)

  Imagine buying a lottery ticket that costs $1, but pays out $1,000 if a major storm hits. Paying $1 during normal weather is so cheap that it does not change weekly spending or force extra work hours to make up for the cost.

• Administrative Social Security Data Linkage for Earnings Measurement →Economics (general)

  Instead of asking individuals to remember and report exact yearly income numbers from a decade ago, researchers obtain signed consent to link survey profiles directly to official government tax records. This creates an unalterable, objective earnings ledger covering years before and after a financial event.

• Agnostic Machine Learning Heterogeneity Detection in Field Trials →Economics (general)

  Evaluating a program using only average results is like measuring the average temperature of a room with one frozen wall and one burning wall and concluding the room is comfortable. Machine learning acts like a thermal camera, splitting the room into sections to reveal the extreme cold and extreme heat hiding behind the average.

• Audit-Protected Performance Measurement →Economics (general)

  Imagine a classroom exam where students know that random answer sheets will be double-checked by independent outside inspectors; unpredictable audits prevent students from cheating or making fake arrangements with graders.