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A theory of compliance with minimum wage law

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  • Asongu, Simplice
  • Jellal, Mohamed

Abstract

In this paper, we introduce firm heterogeneity in the context of a model of non-compliance with minimum wage legislation. The introduction of heterogeneity in the ease with which firms can be monitored for non compliance allows us to show that non-compliance will persist in sectors which are relatively difficult to monitor, despite the government implementing non stochastic monitoring. Moreover, we show that the incentive not to comply is an increasing function of the level of the minimum wage and increasing function of the gap between the minimum wage and the competitive wage rate.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 57335.

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Date of creation: 15 Jul 2014
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Handle: RePEc:pra:mprapa:57335

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Keywords: Minimum wage legislation; Compliance ; Incentives ; Informal sector;

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  1. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 76, pages 169.
  2. Cahuc, Pierre & Michel, Philippe, 1996. "Minimum wage unemployment and growth," European Economic Review, Elsevier, Elsevier, vol. 40(7), pages 1463-1482, August.
  3. Grenier, Gilles, 1982. "On Compliance with the Minimum Wage Law," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(1), pages 184-87, February.
  4. Yossi Tobol, 2005. "Wage discrimination as an illegal behavior," Economics Bulletin, AccessEcon, vol. 10(4), pages 1-10.
  5. Azam, Jean-Paul, 1992. "The Agricultural Minimum Wage and Wheat Production in Morocco (1971-89)," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 1(2), pages 171-91, August.
  6. Orley Ashenfelter & Robert Smith, 1977. "Compliance with the Minimum Wage Law," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 478, Princeton University, Department of Economics, Industrial Relations Section..
  7. George J. Stigler, 1974. "The Optimum Enforcement of Laws," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 55-67 National Bureau of Economic Research, Inc.
  8. Yaniv, Gideon, 2001. "Minimum Wage Noncompliance and the Employment Decision," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 19(3), pages 596-603, July.
  9. repec:ebl:ecbull:v:10:y:2004:i:9:p:1-7 is not listed on IDEAS
  10. repec:ebl:ecbull:v:10:y:2005:i:4:p:1-10 is not listed on IDEAS
  11. Jellal, Mohamed, 2012. "Maroc salaire minimum emploi et pauvreté
    [Morocco minimum wage employment and poverty]
    ," MPRA Paper 38491, University Library of Munich, Germany.
  12. Yaniv, Gideon, 1994. "Complaining about noncompliance with the minimum wage law," International Review of Law and Economics, Elsevier, Elsevier, vol. 14(3), pages 351-362, September.
  13. Brown, Charles, 1988. "Minimum Wage Laws: Are They Overrated?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 2(3), pages 133-45, Summer.
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