White Collar Exemption: Panacea for long work hours and low earnings?

White collar exemption, an exemption rule for an overtime pay (OP) regulation, has emerged as a regulatory instrument to ameliorate two well-known features of full-time employees in Japan: long work hours and low earnings per hour of labor. Using a large cross-section sample of full-time employees in Japan, we empirically investigate the potential outcomes of the exemption rule. We use Rosen's model of labor markets to derive two testable hypotheses: relative to a more traditional OP-exempt labor contract, the exemption rule induces (1) more variability in work hours, but not necessarily shorter hours on average and (2) lower equilibrium wages. For identification, we combine a set of control strategies with stratified matching. To identify comparable subsamples, we exploit the fact that the likelihood of the OP-exempt status increases with firm size and population density even after conditioning on a number of job and household characteristics. The empirical results support our predictions. As with earlier studies, the OP-exempt status itself significantly increases both work hours and wages relative to the OP-regulated status. Yet, the exemption rule reduces both work hours and wages relative to the traditional OP-exempt contract although the differences are not statistically significant.