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Minimum wage noncompliance and the sub-minimum wage rate

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Author Info
Gideon Yaniv () (College of Management & National Insurance Institute, Israel)
Abstract

The present note examines the effect of minimum wage noncompliance on the sub-minimum wage rate in a competitive labor market. The note shows that noncompliance shifts leftward the demand curve of labor and shifts rightward the supply curve of labor, unambiguously leading to a fall in the equilibrium sub-minimum wage rate. Two implications follow: first, contrary to a major result in the minimum wage literature, noncompliance must not necessarily reduce employment (as compared to the pre-law level); it may even increase employment if the deterrent effect of the expected penalty is more than offset by the inducement effect of a lower wage rate. Secondly, and more importantly, if the minimum wage law aims at improving low wages, workers are better off without a law than with one which is not accompanied with sufficient inducement to ensure compliance.

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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 10 (2004)
Issue (Month): 9 ()
Pages: 1-7
Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Handle: RePEc:ebl:ecbull:v:10:y:2004:i:9:p:1-7

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Related research
Keywords: Enforcement Labor Demand Curve Labor Market Equilibrium Labor Supply Curve Minimum Wage Noncompliance

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Find related papers by JEL classification:
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Chang, Yang-Ming & Ehrlich, Isaac, 1985. "On the Economics of Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 93(1), pages 84-91, February. [Downloadable!] (restricted)
  2. Yaniv, Gideon, 1994. "Complaining about noncompliance with the minimum wage law," International Review of Law and Economics, Elsevier, vol. 14(3), pages 351-362, September. [Downloadable!] (restricted)
  3. Grenier, Gilles, 1982. "On Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 184-87, February. [Downloadable!] (restricted)
  4. Yaniv, Gideon, 2001. "Minimum Wage Noncompliance and the Employment Decision," Journal of Labor Economics, University of Chicago Press, vol. 19(3), pages 596-603, July. [Downloadable!] (restricted)
  5. Ashenfelter, Orley & Smith, Robert S, 1979. "Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 333-50, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Yang-Ming Chang & Bhavneet Walia, 2007. "Wage discrimination and partial compliance with the minimum wage law," Economics Bulletin, Economics Bulletin, vol. 10(4), pages 1-7. [Downloadable!]
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This page was last updated on 2008-8-28.

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