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Noncompliance and the Effects of the Minimum Wage on Hours and Welfare in Competitive Labor Markets

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Author Info
Leif Danziger ()

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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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2786.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2786

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Related research
Keywords: noncompliance; minimum wage; working hours; welfare; competitive labor markets;

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Find related papers by JEL classification:
J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

References listed on IDEAS
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  4. Volker Nitsch, 2009. "Fly or Cry: Is Airport Noise Costly?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  40. Danziger, Leif, 2009. "Noncompliance and the Effects of the Minimum Wage on Hours and Welfare in Competitive Labor Markets," IZA Discussion Papers 4408, Institute for the Study of Labor (IZA). [Downloadable!]
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  41. Eytan Sheshinski, 2009. "Uncertain Longevity and Investment in Education," Discussion Paper Series dp520, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem. [Downloadable!]
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Full references

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(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.)

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  15. Leif Danziger, 2009. "Noncompliance and the Effects of the Minimum Wage on Hours and Welfare in Competitive Labor Markets," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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