Overtime and Short-time with Fluctuating Absenteeism and Demand ∗

Even though overtime is a widely observed phenomenon, this paper argues against the view of overtime as a structural cost minimizing labor demand solution. A large part of the observed overtime can be explained by the volatility of demand and absenteeism. The paper’s contribution is to investigate how stochastic absenteeism and stochastic demand tend to increase average hours per worker. Two distinct mechanisms are identified, independent of the type of uncertainty. The relative sizes of these mechanisms differ between the type of uncertainty, but also between cost minimization and profit maximization models. The profit maximization model has the advantage that it predicts a spike at normal hours