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Underreporting of Earnings and the Minimum Wage Spike

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  • Tonin, Mirco

    ()
    (University of Southampton)

Abstract

This paper documents a positive correlation within European labour markets between the proportion of full-time employees with earnings on the minimum wage and the extent of underreporting of earnings in the economy. Using a simple model of a competitive labour market, I show how this correlation can emerge as a result of the common dependence of both quantities on the strength of enforcement of fiscal regulation. This suggests that a high spike in the wage distribution at the minimum wage level is, in some contexts, an issue of fiscal enforcement, more than a labour market issue.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5942.

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Length: 19 pages
Date of creation: Aug 2011
Date of revision:
Publication status: published in: IZA Journal of European Labor Studies, 2013, 2, Article 2
Handle: RePEc:iza:izadps:dp5942

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Keywords: underreporting; spike; minimum wage; lighthouse effect;

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References

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  1. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2007. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0720, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  2. Mirco Tonin, 2007. "Minimum Wage and Tax Evasion: Theory and Evidence," William Davidson Institute Working Papers Series wp865, William Davidson Institute at the University of Michigan.
  3. Tonin, Mirco, 2010. "Too low to be true: the use of minimum thresholds to fight tax evasion," Discussion Paper Series In Economics And Econometrics 1018, Economics Division, School of Social Sciences, University of Southampton.
  4. Tito Boeri & Pietro Garibaldi & Marta Ribeiro, 2011. "The Lighthouse Effect And Beyond," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57, pages S54-S78, 05.
  5. Lemos, Sara, 2009. "Minimum wage effects in a developing country," Labour Economics, Elsevier, vol. 16(2), pages 224-237, April.
  6. Andreoni, J. & Erard, B. & Feinstein, J., 1996. "Tax Compliance," Working papers 9610, Wisconsin Madison - Social Systems.
  7. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027, December.
  8. Bosch, Mariano & Manacorda, Marco, 2010. "Minimum Wages and Earnings Inequality in Urban Mexico," CEPR Discussion Papers 7882, C.E.P.R. Discussion Papers.
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Cited by:
  1. Anna Lukiyanova, 2011. "Effects of Minimum Wages on the Russian Wage Distribution," HSE Working papers WP BRP 09/EC/2011, National Research University Higher School of Economics.

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