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Noncompliance and the effects of the minimum wage on hours and welfare in competitive labor markets

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  • Danziger, Leif

Abstract

This paper shows that increases in the minimum wage rate can have ambiguous effects on the working hours and welfare of employed workers in competitive labor markets. The reason is that employers may not comply with the minimum wage legislation and instead pay a lower subminimum wage rate. If workers are risk neutral, we prove that working hours and welfare are invariant to the minimum wage rate. If workers are risk averse and imprudent (which is the empirically likely case), then working hours decrease with the minimum wage rate, while their welfare may increase.

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Bibliographic Info

Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 16 (2009)
Issue (Month): 6 (December)
Pages: 625-630

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Handle: RePEc:eee:labeco:v:16:y:2009:i:6:p:625-630

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Web page: http://www.elsevier.com/locate/labeco

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Keywords: Noncompliance Minimum wage Working hours Welfare Competitive labor markets;

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References

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  4. Leif Danziger, 2009. "Endogenous Monopsony and the Perverse Effect of the Minimum Wage in Small Firms," CESifo Working Paper Series 2740, CESifo Group Munich.
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Citations

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Cited by:
  1. Leif Danziger, 2009. "Endogenous Monopsony and the Perverse Effect of the Minimum Wage in Small Firms," CESifo Working Paper Series 2740, CESifo Group Munich.
  2. Danziger, Eliav & Danziger, Leif, 2014. "A Pareto-Improving Minimum Wage," IZA Discussion Papers 8123, Institute for the Study of Labor (IZA).
  3. Eliav Danziger & Leif Danziger, 2014. "A Pareto-Improving Minimum Wage," CESifo Working Paper Series 4762, CESifo Group Munich.
  4. Baumann, Florian & Friehe, Tim, 2012. "On the evasion of employment protection legislation," Labour Economics, Elsevier, vol. 19(1), pages 9-17.

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